Good afternoon, welcome to the Petra Diamonds Limited Q4 full year 2023 operating update. For our recorded presentation, investors will be in listen-only mode. Questions are encouraged, can be submitted at any time by the Q&A tab situated in the right-hand corner of your screen. Just click Q&A, scroll to the bottom, type your question, and press Send. The company may not be in a position to answer every question received during the meeting itself. We review all questions submitted today and publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. Then I'd hand you to Richard Duffy, CEO. Good afternoon.
Good afternoon, and good morning, everybody. Thank you for joining us today for a discussion of our fourth quarter and full year operating update for the period ending 30 June 2023, as well as our guidance for the 3 years financial year 2024 to 2026. I'm Richard Duffy, CEO, and with me is Jacques Breytenbach, our CFO, who will cover the key financial metrics as well as our guidance. After taking you through our announcement, we'll open up for Q&A. Please note that we have recorded an earlier version of this, and as I understand it, are recording this presentation as well. As always, let's begin with safety, which remains our number one priority.
I'm pleased to report that our lost time injury frequency rate decreased sharply from 0.47 in Q3, financial year 2023, to 0.12 in the fourth quarter, and lost time injuries from eight to two. This reversed the regression in our safety that had occurred in previous quarters. Year-on-year, we have seen a marginal increase with our lost time injury frequency rate increasing from 0.22 to 0.24, and lost time injuries increasing from 15 to 17. In striving for a zero-harm environment, we continue to ensure that we maintain our focus on remedial actions and behavior-based intervention programs across our operations. Turning now to our operations. Total diamond production in the fourth quarter decreased by 5% on the previous quarter to just over 620,000 carats, due to lower grades at Cullinan Mine and Finsch.
With remediation steps now implemented at both mines, grades have reverted to planned levels. As a result, financially at 2023, production totaled 2.67 million carats, marginally below our guidance of 2.75 million-2.85 million carats. We'd like to acknowledge the quick and effective response of the team to the challenges we encountered during the fourth quarter on grades, and we are confident of our outlook going forward. Run-of-mine tonnes treated increased 10% in the quarter from quarter three, driven by a 12% increase at Finsch and a 9% increase at Cullinan Mine. The operational turnaround at Finsch reflects the introduction of new underground equipment, the recruitment of a number of senior technical personnel to fill vacancies, and the resolution of ground handling issues that impacted production in quarter three.
At Cullinan Mine, the improvement reflects increased plant availability, largely on the back of the completion of a mill relining in quarter three. Total tonnes processed for the year decreased 22%, mostly due to the 7-month suspension of production at Williamson, following the Tailings Storage Facility wall breach last November. Post-period end, I'm very pleased to say that production resumed at Williamson ahead of schedule, following the completion of construction of the new Tailings Storage Facility and receipt of final regulatory approvals. The mine is expected to ramp up to full production of around 400,000 carats annually over the current financial year. In terms of remediation activities that have occurred since the breach, a new clean water dam has been constructed for use by the community.
Soil amelioration trials in affected areas have yielded promising results. Substantial recovery of grass in certain areas means that livestock grazing has already commenced. An assets inventory and socioeconomic baseline carried out by Williamson and independent experts into impacted livelihoods has been completed, with a total of 303 of 304 affected persons having been appropriately compensated, in line with Tanzanian regulations and also IFC best practice. 23 households remain accommodated in houses rented by Williamson, which will continue until they have been relocated to replacement houses. For all displaced house tenants, Williamson has paid rental for 12 months, along with an additional transport allowance. At Koffiefontein, care and maintenance activities are ongoing as we prepare for a responsible closure. Our consultation with the mine's key stakeholders remains constructive as we continue with our inclusive process. Turning now to the market.
The rough diamond market has softened from the highs last year associated with a post-COVID surge in demand, which peaked during quarter one of financial year 2022. As detailed in our most recent tender announcements, we believe softer demand reflects elevated inventory in the midstream, in what is typically a period of lower seasonal demand, and therefore expect the current slowdown to be temporary as a result. This has been exacerbated by rising interest rates, which increase the cost of holding inventory. From a macro standpoint, the U.S. Federal Reserve did not raise its target federal funds interest rate at its June meeting, following a string of 10 consecutive rate hikes. The decision was taken as relative U.S. inflation has fallen to the lowest level since early 2021.
Jewelry retail demand continues to be strong, although there is some weakness in the lower mid-luxury range, given the currently weaker economic backdrop. The progress we have made to strengthen the balance sheet over the last couple of years, together with our flexible sales process, means we are well-placed to respond to short-term weakness in the diamond market. In May, we postponed a portion of Tender 5, and in June, the majority of our Tender 6 sales into this financial year, 2024. This was done with the aim of maximizing value for our diamonds in anticipation of improved demand once the summer holidays come to an end and the midstream looks to restock ahead of the festive period. In the medium to longer term, we continue to expect a stronger diamond market as a result of the structural supply deficit, which should leverage our growth profile.
I will now hand over to Jacques, who will run through some of the key financial metrics and our updated guidance. Jacques.
Thank you, Richard. Starting with our revenue, fourth quarter sales were impacted by the decision taken to defer 75.9 thousand carats of predominantly higher value goods from Tender 5, and the majority of our Tender 6 goods into fiscal year 2024. Year-on-year revenues were also impacted by a 20% reduction in diamonds recovered, as well as a lower contribution from exceptional stones, these being rough diamonds that sell for $5 million or more each. In fiscal year 2023, exceptional stones sales generated $12.6 million of revenue, compared to $89 million in the previous year.
These negative impacts were partly offset by like-for-like prices, increasing by some 2% year-on-year, and slightly higher revenue from profit share agreements, which generated an additional $1.4 million of revenue in 2023, compared to $1.1 million in FY 2022. In terms of our balance sheet, gross debt decreased to $247.3 million at the end of June, down from $366 million, June 2022, reflecting the successful repurchase of a portion of our 2026 Loan Notes during the year. Consolidated net debt stood at $176 million, an increase from $124 million at the end of March. This is due to the ongoing capital expensive pro- extension programs at both Cullinan and Finsch, coupled with the deferral of sales to fiscal year 2024.
As a result of this deferral, inventory increased to 715,000 carats, valued at some $66 million at the end of the year, compared to 382,000 carats, valued at $40.2 million, June of 2022, both excluding the blocked diamond parcel from Williamson. The ZAR 1 billion revolving credit facility with Absa Bank remains fully undrawn, with an available balance equivalent to some $53 million at the 30th of June. Cost inflation continues to impact the mining industry globally, with 80%-90% of our OpEx and 90%-95% of our CapEx denominated in rands across our SA operations. The strengthening U.S. dollar has largely mitigated the impact of rising local inflation, together with our disciplined approach to cost management.
We saw the rand closing at ZAR 18.83 to the dollar, compared to ZAR 16.27 a year ago, while an average rate of ZAR 17.77 to the dollar was recorded over the full year period, up from ZAR 15.22 in FY 2022. Today, we are reiterating our guidance for production to increase by up to 1 million carats in FY 2025, and guiding 3.4 million-3.7 million carats for full fiscal year 2025, and issuing guidance for a further 300,000 carats to reach 3.7 million-4 million carats in FY 2026.
This strong growth reflects the contribution of CC1 East and C-Cut Extension projects, which is currently underway at Cullinan Mine, the Lower Block 5, 90-level sublevel cave project underway at Finsch, as well as the ramp-up of production at Williamson during FY 2024. Revised project schedules resulted in a modest downward adjustment to carats recovered in FY 2024 and 2025 compared to previous guidance. A portion of unspent FY 2023 capital expenditure has been deferred to FY 2024, and is included in the revised CapEx, as stated. As I mentioned earlier, recent inflationary pressures are being mitigated through robust cost control, as well as the benefit of a weaker rand. Let me hand back to Richard to wrap up with the outlook.
Thanks, Jacques. In conclusion, the resilience of our operating model has supported the turnaround underway at Finsch and steady state production at Cullinan Mine, with production now stabilized and grades returning to planned levels. This has been accompanied by a much improved safety performance. Williamson has restarted ahead of schedule, and our underground development projects at Cullinan Mine and Finsch remain on track to deliver substantial incremental production growth in financial years 2025 and 2026. These projects support delivery of the approved mine plans to 2032 at Cullinan Mine, 2031 at Finsch, and 2030 at Williamson. Significant further extension opportunities exist thereafter, which we will continue to explore as part of our value-led growth strategy, and we'll provide more detail at the Capital Markets Day planned for early next calendar year.
Our strong organic growth profile, together with actions taken in recent years to strengthen the business and improve cash flow generation, alongside our disciplined capital approach, have left Petra well positioned to take advantage of the supportive diamond market fundamentals expected in the medium to longer term. That concludes our overview, and we would like to hand back to the host for our Q&A session.
That's great, Richard. Thank you very much. Richard, Jacques , thank you indeed for the update and the presentation. Ladies and gentlemen, do please continue to submit your questions using the Q&A tab just situated in the right-hand corner of your screen. While the team take a few moments to review those questions submitted today, I'd like to remind you the recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. As you can see, we've had a number of questions throughout today's presentation. Thank you to all the investors for submitting those. Patrick, if I may just hand over to you just to read out those questions and direct it to a member of the team where appropriate to do so. Thank you.
Thank you, moderator. The first question comes from James: What is the strategy with respect to the balance sheet? Will you look to de-gear and then look to return capital to shareholders?
Thank you, Patrick. Jacques here. Thank you, James. We've this year announced a capital allocation policy together with a dividend policy. We would look to consider dividends, 15%-35% of our free cash flow towards a dividend strategy. Further to gearing, de-gearing could actually happen in conjunction with returning some returns to shareholders, although unlikely for FY 2023. Definitely on our radar screen for fiscal year 2024.
Thank you, Jacques. I have a second question from James, I think also for you. How do rising interest rates impact the business with respect to the debt position going forward?
James, our debt at the moment is limited to our Loan Notes. It is a fixed interest rate for the remainder of the bond. This 2026 Loan Notes matures in March 2026. For the period up to then, unless we look at doing something with the debt, our interest rate is fixed for that period. Our RCF facility, which is currently undrawn, and we expect to remain largely undrawn going forward, is subject to an interest rate fluctuation, and rising interest rate may see us having a slightly higher rate on that facility, although it's not a permanently drawn facility.
Thank you, Jacques. I have a question from Omar, I think for Richard. Do you see room for industry consolidation, and would Petra consider M&A activity? If so, what would the key metrics be that we would be looking for as a business?
Thanks, Omar. Yeah, we've had some questions around industry consolidation, and it seems to be, you know, a topic that gets raised from time to time. We do have a number of smaller players in the industry, with quite a concentrated production at, you know, the top end. I think, if there was an opportunity to look at consolidation, certainly we would be interested. However, I think, it needs to be driven by a strong value conversation. We're not proponents of consolidation for consolidation's sake.
The key metric would be around value, and any, you know, transaction as part of any consolidation would need to be, you know, strongly value-led, which is captured in our growth strategy of being a value-led growth strategy. Yes, there may be an opportunity, but from our perspective, it would need to support value.
Thank you, Richard. I think another question for you, Richard, from David. The operations are now de-risked and in a position to grow from here. What is left that perhaps concerns you about the execution of our plans going forward?
Yeah, David, I think, you know, the business, I would say, Cullinan has largely stabilized and is, you know, performing steady state. Finsch is well on its way there. I think the challenges are to continue to run the operations stably, but also to look for opportunities to improve as part of our continuous improvement or business improvement aspect of our operating model. The operating model is in place, and I think we have the team to execute. We need to continue to optimize the ore bodies to ensure that beyond the current projects, we're able to continue to operate our mines.
Again, I think, we're well positioned, as I said, to complete those studies, and we'll provide a little more information on that upside beyond the current mine plans at our Capital Markets Day. Mining is mining. I'm sure we will have challenges. It's the nature of the business, but, I think in, you know, in our case, we have both strong operating teams and, small teams at the center to provide support, particularly around any technical challenges.
Thank you, Richard. A question for Jacques, please. It comes from Mark. In terms of our capital allocation plans, how are we prioritizing the calls on our cash?
Thank you, Mark. You see, our capital allocation policy is really based on three orders. First order allocation towards obviously the day-to-day business and ensuring our stay in business capital... and operating expenses are met, as well as our debt servicing obligations. We very recently in June, in end of June, started incurring our first cash pay coupons on our 2026 Loan Notes as well. Second order allocation, we've been, we look at funding our expansion capital, which we're currently underway with three projects, two at Cullinan, one at Finsch. Further growth projects, including inorganic growth projects, could be considered in that pot as well. Early debt redemption and dividends to shareholders will also form part of our second order allocation.
Then lastly, a discretionary allocation, in the event of windfall earnings, and other discretionary funds being available, special dividends, opportunistic growth opportunities or then even share buybacks could form part of our consideration. We are absolutely committed to further reducing our gross debt, modest dividends in future, when we start, and we won't start until we are comfortable that we can maintain dividends on a predictable nature. Yeah, that's, I think the main items.
Thank you, Jacques. There are no further questions coming in on the chat. I'm handing back to Richard now to close the call. Thank you.
Thanks, Patrick, and thank you very much to all of you for participating again. As always, if there are questions you have that you haven't been able to answer here, please raise them with our IR team and we will get back to you. Thanks again, and we look forward to catching up again in due course.
Richard, Jacques, thanks indeed for updating investors today. Could I please ask investors not to close the session, as you will be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This will only take a few moments to complete and is greatly valued by the company. On behalf of the management team of Petra Diamonds, I'd like to thank you for attending today's presentation. That concludes today's session. Thank you and good afternoon to you all.