Good morning, everybody, and welcome to Petra's Investor Day. I'm delighted to be standing in front of an audience here in London. I would also like to welcome those of you who are joining us via conference call and on our website. The reason we're here today is really just to take you through Petra's journey, and in particular, focus on our reset. It's been quite a journey over the last few years, and we thought it was opportune to share with you our view of the business going forward. I'd like to draw your attention to the usual disclaimer around forward-looking statements and assume that you've all had a look at that. Then just to talk you through the agenda, which you can hopefully all see, those of you who are joining us via webcast.
I'll do a brief introduction. We'll take you through the interim results. Jacques will do that for us. We'll then have a look at the market, and it's wonderful to be standing here with the diamond market we see today. We'll then talk about our reset and the journey we've been on before taking you through an overview of our new sustainability framework that forms an important part of our strategy going forward. We'll then talk about the operations, which will include an outlook over the next three years in terms of our production OpEx and CapEx.
We'll then move on to the financial framework, our capital allocation framework that will support and inform our strategy going forward before we unpack the strategy around future growth for Petra. Before I get going, though, just to introduce the team. I'm Richard Duffy, the CEO of Petra Diamonds, and I'm joined here in London by Jacques Breytenbach, who's our CFO, Juan Kemp, who's our Chief Technical Officer, and Rupert Rowland-Clark, who is our General Counsel and Company Secretary. I'm also delighted to have Peter Hill here with us, our Chairman, and some other colleagues from Petra who have joined us today. Welcome to you all.
I would also just like to highlight the two of our executive colleagues who were not able to join us in the form of Jason Rajan and Tashmi Doorasamy. Jason has recently been appointed as Chief Operating Officer. It's a role we've reintroduced to the business, and I will talk a little to that later when I talk about our new structure in the business. Jason, as you probably know, was the General Manager at Cullinan. Tashmi heads up our Sustainability and HR, and both are on the call, unfortunately, not with us, but able to take questions at the end of the day.
What I should have mentioned in the introduction is once we're done with the presentation, and we'll do our very best to keep it to under two hours, we will have questions and answers, and we'll start by taking questions from those of you here with us in the room in London, then conference call participants, and followed by the webcast. Jill Sherratt is also with us, heading up our investor relations, and I'm sure you'll meet other members of the team as we progress. We thought it was a good idea to introduce you to the broader management team. As I said, unfortunately, not all of us are here in person, but you will get to meet the rest of them in due course. Stepping into the main part of this presentation.
This really just is a snapshot of where Petra is today. We are a mid-tier multi-asset diamond producer, and we are really in a transformative stage of our journey. If you just look at the headline numbers, we over the last 12 months produced 3.3 million carats, nearing $500 million in revenue, $200 million of EBITDA and net debt now at a little over $150 million. It's important just to dwell on that a bit. You know, our net debt pre the restructure was well over $700 million. We are in a vastly different financial position standing here today.
Also worth noting is that we have a very substantial resource base at 230 million carats, which puts us third globally behind ALROSA and De Beers. We are one of the few multi-asset companies in the industry. We will talk through all of those operations as we go through this presentation. Talking to each of them will happen towards the end of our presentation today. Important that we start with safety, and I'm delighted to be able to say that we've seen a very significant improvement in our safety performance in this year as compared to last year.
It remains our single most important focus is to ensure that all of our employees work in safe working environments and are able to return home to their families safely every day. Health is also a key part of that, and I'll talk a little bit to that on the next slide. COVID-19, I think, we all have lived our own experiences over the last year and a bit. Importantly for us at Petra, we have put in place very rigorous measures to mitigate the impact of COVID and to ensure that our workforce is not only healthy and protected, but that we also have limited disruption to our operations.
I'm very pleased to be able to say that those measures have, by and large, been successful, and we have had very little impact on our employees and on our operations through this pandemic. We have had some disruption to our sales process, and that required us to adopt a more flexible approach, and Jacques will pick that up when he talks to the sales process later on in our presentation. With that, I'm going to hand across to Jacques, who will talk you through a summary of our interim results that were also released earlier today, and then I'll pick up from there. Thanks, Jacques.
Thanks, Richard, and good morning, everyone. Looking at some of the key indicators for our H1, you will note ore processed increased by some 27%. That was largely on the back of Williamson diamond mine coming back onto production during this half after a significant period of care and maintenance. Our diamond production increased by some 2%, with revenue also increasing 64%, a significant increase there. We'll unpack that a bit later. Adjusted EBITDA, as well as operational free cash flow, already exceeded our results that we posted for our full year 2021 in the six-month period. Consolidated net debt reduced down to 1x EBITDA, and it is in line with our to-be-stated target of 1.5x EBITDA leverage. Moving on to slide 10.
For the six months to December, it was the strongest six-month period in Petra's history, supported by a robust operating performance and good ongoing cost control. Our financial results benefited by a 16% increase in like-for-like prices for our product, while the absolute dollar per carat increased by 45% year-on-year due to the improved product mix, including some exceptional stones. These stones yielded $77.9 million for this six-month period, compared to $40 million in the prior period, and $62 million for the full year FY 2021. Our adjusted net profit after tax of some $66 million represented adjusted earnings per share of $0.29 for the six-month period to December. NPAT of $49 million delivered a basic EPS of $0.22 per share as well.
Due to the unpredictable timing of recovering of these exceptional stones, it's important to note that full-year expectations for our FY 2022 should not necessarily reflect a mere doubling of our H1 results. Looking at the summary of results in a bit more detail, I want to point out that the adjusted mining and processing cost of $110 million are stated net of diamond inventory movement for this period. Our actual on-mine cost came in at $130 million for the six months, as detailed in our interim results announcement we released earlier today. Our FY 2021 bottom line results also benefited by a $213 million gain on the extinguishment of our previous bond.
While unrealized foreign exchange losses, largely reflecting accounting adjustments, recognizing rand movements on our intergroup loans, resulted in a $17 million loss for this period net of taxes, compared to a $45 million and $55 million profit, also net of taxes in the two comparative periods. Moving on to a summary snapshot of our balance sheet numbers. You'll see a significant improvement in our cash balances, closing the period at just over $272 million.
Diamond inventories increased to some $80 million, and that was driven by firstly our timing of our sales with H1 lockup in sales experience due to the earlier cutoff with the Christmas break, as well as then Williamson mine coming online and effectively filling the pipeline for release in future periods. Our gross debt amounts to some $425 million, comprising the new $336 million notes, as well as just under $80 million in first lien debt. This compares to some $810 million of gross debt in the comparative period.
Briefly looking at the consolidated net debt movement, you'll see that strong or significant operational free cash flow of over $120 million assisted to reduce our net debt, consolidated net debt from $228 million to $152 million in this period. Important to note there, or just want to point out, the $29.5 million H1 inventory buildup, which we do expect to be released during our second half of the year. That's the interim results. I'll hand back to Richard for a view on the diamond market.
Thanks, Jacques. We're galloping along nicely. Turning to the market, yeah, it is certainly the first time in my nearly three years where I'm able to talk about a little tailwind from the market having really faced headwinds for the last number of years. I think it's worth just dwelling on this for a minute to look at the dynamics of the market as it stands today. The first thing we're showing here is graphically and geographically the small number of producing diamond mines in the world today, and all of them are obviously depleting. We've spoken, you know, for a while we've been talking about Argyle closing, and that has now indeed happened.
Australia, from a production point of view is effectively out of the picture. Canada is still producing, but it has fewer mines with shorter life. It's really Africa and Russia being the major producers. Also worth noting that a number of the large producers that are open pit operations are either already transitioning to underground or will have to transition to underground. That also introduces additional risk in terms of produced diamonds. If you then move on to the global exploration spend, that graphic with the bar charts at the bottom is an important one to look at because we've seen very suppressed exploration spend for over 12 years.
The areas of exploration, when you look at the latest spend, is significantly Canada-focused, and that is a geography that is quite challenging in terms of exploring and mining. And the $274 million of spend on global exploration in 2020, that suggests that the chances of a new significant kimberlite pipe, A, being discovered and B, being brought into production certainly over the next decade is remote. Even if we were to find a viable kimberlite pipe globally, it's probably 10 years before you see production from that operation.
When you have a look at the overall outlook in terms of supply, which Bain put out recently, you can see that even in an upside scenario, you're looking at best a 1%-2% growth in supply, certainly over the next five-plus years. From a supply side, certainly very constrained. That's fine. Have I skipped? Sorry, I'm just checking. No. When you turn to the demand side, you see a very different picture in terms of what the market looks like. Coming out of the pandemic, we've seen jewelry and diamond jewelry in particular being one of the winners in terms of discretionary spend. There are a number of reasons for that. One is, I think, our consumers had increased disposable income.
Discretionary spend around things like travel obviously had been curtailed as a result of the pandemic. I think the instability and the turmoil around the pandemic also resulted in people investing and spending money on more meaningful gifts like diamond jewelry. It enabled them also to celebrate people and emotions as a result of, you know, coming through what was and has been a very disruptive pandemic period. We've seen record jewelry sales, and Bain have indicated or expect around $84 billion in terms of jewelry retail sales this year, a 29% increase. All of this in terms of the demand side in stark contrast to a very muted and suppressed supply side.
If you turn to the destocking in terms of the diamond market, we're seeing lower supply, as I showed, and certainly much higher demand. It's worth just dwelling on this excess inventory, both upstream and downstream. We should just thank ALROSA for the slides which we've used to demonstrate this. I think what's also important is to just note the difference between the destocking that happened in 2019 versus the destocking that we're seeing now, and that was for very different reasons. You may recall that in 2019, it was a very difficult year for diamonds. The diamond inventories had built up across the inventory pipeline from rough through midstream all the way through to the retail end.
The midstream was really in crisis. We saw a number of financiers, banks withdrawing finance. The midstream was simply in disarray at the time, and the excess inventory certainly didn't help at all. What we saw towards the middle of 2019 was the majors then actively reducing the supply of inventory to the market to provide a little bit of stability. As we moved towards the end of 2019, we started to see a few green shoots in terms of market recovery, and we thought that we were finally turning the corner. Then, of course, COVID happened, and we saw the very material collapse in diamond prices.
I'm making the distinction because what happened in 2019 also informs what we're seeing now, because there was very limited buying, destocking, but not as a result of demand, as a result of distress in the midstream, and also as a result of larger inventory stockpiles. What we're seeing now in 2021 going into 2022 is a very strong demand pull into an inventory pipeline where inventories are largely depleted. As ALROSA has said, their stock levels are at rock bottom, and I think the ability of suppliers to now provide inventory to the market is very slim or very low.
We're in a fortunate position currently where demand is pulling straight through to the supply side, and we are now seeing the long-predicted supply squeeze in terms of the market, which is reflected across all of the diamond categories. This is neatly illustrated on this slide that shows the inflection point where we're seeing the supply-demand shortfall now manifesting itself. Why this is important is what we're seeing in the market is a structural change. It's not a bubble or a blip. It's supported by fundamental supply-demand and there is not currently sufficient diamond inventory, rough diamond inventory, to supply the market, which is why we have seen the increase in pricing. It suggests that we would have a supportive and robust market going forward.
You know, we don't anticipate seeing necessarily the same rate of increase in prices, but all of the fundamentals suggest a very supportive diamond market. If we turn to lab-grown diamonds, that segment has seen a fair bit of growth, I think as we had expected. But importantly from our perspective, this segment is able to coexist with natural diamonds and potentially grow the market for diamonds overall. Why we say this is it's become clear that it is emerging as a different product in terms of market segment. You can see that the price of lab-grown diamonds has more than halved over the last five years. It is establishing itself as a different product in a different market segment.
In history, as we, you know, look at other gemstones where we had man-made versions, they have their own market, but at a considerable discount. Coupled with that, the cost of producing lab-growns has come down significantly over the last number of years. I think what you will see is lab-growns being increasingly priced on a cost- plus basis, rather than with reference to natural diamonds. Then if we turn to the Natural Diamond Council, I think they're doing a fantastic job in establishing and identifying natural diamonds and the desirability of natural diamonds and the uniqueness that natural diamonds are all about. Their whole focus is on establishing only natural diamonds as the number one global luxury brand for natural diamonds.
They've done a lot of work around establishing this in the marketplace, particularly around social media. You can see some of the numbers up there in terms of how many visitors they've attracted to the various sites, and they are making a difference in terms of promoting natural diamonds. We're excited about the work they're doing, and we're excited about how they're positioning this whole natural diamond sector going forward. I'm now hoping to be able to play you a video that just highlights the activities of the Natural Diamond Council over the last year. Thank you.
Right. Hopefully what you would have seen from that four-minute clip is a lot of activity across a wide range of fronts. I think what is important as natural diamond producers is to establish and focus on the good that we do through our mining activities. Which is obviously not just about providing employment and contributing to countries' GDP, but it's also about being sustainable in terms of how we run our businesses. The benefits that accrue to our communities, our host communities, our training and development we do. The programs around nature conservation and biodiversity. The focus on environment that we all know is increasingly in the spotlight around ESG reporting, which we'll talk to a little later.
I think the key message here is our need to differentiate ourselves as natural diamond producers that are really producing stones that are billions of years old that get cut and polished into these magnificent pieces of jewelry. Understanding the benefit of the creation of these diamond jewelry pieces all the way back, not just to mine site, but to host communities and governments and countries as well. I'm now going to move away from the marketing side and talk about where we are currently as Petra. We've called this resetting Petra really on the back of going through what was a very difficult period.
I won't, you know, go through all of the detail, but, you know, the restructure in terms of, addressing our significant debt problem, is now behind us. We can focus on resetting the business, and setting our sights to the future, as opposed to dealing with current issues, which is really where we've spent most of the last sort of two and a half years. I'll start in describing this journey by talking to Project 2022, which was something that we introduced back in the middle of 2019. Really the first and major focus of this project was to generate more cash.
We had a very significant debt in a $650 million bond that was maturing in the middle of 2022, which is this year. The focus was on trying to generate $100 million-$150 million of net free cash from the business over the three-year period. The start of that journey was really to stabilize the operations. We had been on a very significant capital investment program. We had established a new block cave at Cullinan that was starting to produce as the early draw points were starting to come into production. We were completing the sublevel cave at Finsch, and we needed to get some stability into the operations as we transitioned from high capital into steady state production.
That was the first focus of Project 2022. The reason for that is you need a stable base before you can start to look at opportunities to optimize the business. Which was the second focus area, was to identify opportunities to debottleneck to build on a more stable production base to deliver additional value. Juan Kemp, our CTO, will unpack this in a little more detail in the next slide. I think why this was important is it became a focal point for the business. It allowed us all to get behind a single target. It wasn't easy. I spoke about 2019. You know, all of the benefits we were delivering through Project 2022 was simply being eroded by a collapsing market.
The analogy I used at the time was, it was a bit like running up an escalator coming down. You had to keep running faster to stay pretty much in the same place. Having done that, I think we established the foundation for what we're seeing in the market today. I'm very pleased to say, and Juan will unpack that we are well on track to meeting and beating that target that we set ourselves back in the middle of June 2019. What's important in going through the third and fourth stages of this is, as we taper Project 2022, the important thing is what we're doing is we're embedding continuous improvement into our operating model as part of our operating culture.
We've built systems and processes over the last three years with a focus on continuous improvement that will now be part and parcel of our operating model, and we will apply this to all aspects of the business in terms of how we run things going forward. I'm going to ask Juan just to come up and take you through Project 2022 and give you a little bit of insight into what it was we focused on, the areas of contribution, and how we went about establishing and driving Project 2022. Juan. I'll take you to the next slide.
Thank you, Richard. Good morning, ladies and gentlemen. Yeah, Project 2022. If I look back 30 months into the project that we announced in June 2019. At that point, we announced that we will be between $150 million and $200 million of net free cash flow generated by the business. I think very important point, Project 2022 was not a sideline of the business. The business was Project 2022, and we all worked together in order to achieve the success of this project.
As Richard indicated, during Project 2022, we went quite well, and then the diamond market came in and there was a reduction in prices, and we came back to the market, and we indicated $150 million-$200 million net free cash flow we now see as between $100 million and $150 million. As we can see on the slide there, this is as per December 2021, 30 months into the project. We can see that the business generated net cash of $182 million during the 30-month period. We did what we actually said we will do at the initial outlay of this project. How did we do it? I think very important, as I indicated, the business was Project 2022.
We set up various streams throughout the business, covering every area of the business, with the focus, as we indicated on that slide, throughput, OpEx efficiencies, CapEx efficiencies, and also organizational design. What we've got managed to achieve through Project 2022 is we set up structure in the business, in all areas of the business, to be able to derive out Project 2022 output. We, for instance, have at each of the operations, we've got project teams working on Project 2022 with line management. We set up a program management office at the center monitoring the performance of 2022 ideas. Very important, what is the basis of Project 2022 is ideas are generated throughout the business.
They go through a very vigorous review and authorization process before they become projects, and those projects are then driven out. Now, if I can mention some examples of those projects. For instance, at Cullinan tonnes wasted was a critical area that we wanted to improve. People that follow Petra for a long time, we indicated all along 4 million tonnes is what we will be able to do from underground. We said, "Let's get that up," because the plant can treat additional tonnes. We focus in detail and simple things that add a lot of value. For instance, can we improve on shift changeover underground? Can we reduce or can we increase the number of skipped wasted per hour? At Finsch, for instance, we looked at the secondary blasting strategy.
Is there a way that we can improve on that? That became an idea. Tunnel flexibility in terms of turnaround time in tunnels to make sure that we've got tunnels that can that is enough flexibility so that we can deliver. On the cost side, for instance, example at Finsch, we changed the supplier of our water, 'cause water in the Northern Cape in South Africa is quite a scarce commodity, quite expensive. We changed the supplier, which led to quite a significant reduction in cost. I think for me, what stands out about Project 2022 as we look forward, we indicated first 30 months, $182 million of net free cash flow. The project comes to an end in June this year, June 2022.
That will be the end of Project 2022, and we forecast to be above $200 million of net free cash flow, which is higher than the initial target that we set ourselves. Very important is that we will start on the 1st of July, and we're busy transitioning now from Project 2022 into business improvement. We can see on the slide the successfully embedded continuous business improvement culture. That is effect in Petra. It's something that we've built. It's a capacity that we built, and it's a capacity that will take the company forward and that the company can benefit going forward post Project 2022.
We also looked at scanning the environment, and what we saw is some of the open pit diamond mines. Using different X-ray technology, XRT, X-ray transmission technology, we use X-ray luminescence. They recovered quite a number of large white stones. We said, "Let's have a look." We're using X-ray luminescence in our large diamond recovery stream, which is our 32-75 mm particles. We did a test over the last 12 months about now, where we took some of our X-ray luminescence tiles through the X-ray transmission plant, which we constructed, to see if there is some additional diamonds that we can recover. Yes, the XRT did recover some diamonds.
I think what is important is that we went and took each of those stones that was recovered by the X-ray transmission machines, and we took it back to the X-ray luminescence machines to see whether it can be discovered by those machines. We did not find any diamond that could not be discovered by the X-ray luminescence plant. In short, what we can say is the technology that we implemented at Cullinan in terms of the large diamond recovery plant using XRL luminescence technology is appropriate and fit for purpose. That the XRT, in terms of the technology and enhancement, actually very good machines and in terms of maintenance and so on, quite a robust machine.
Yield, we were a bit concerned about in terms of the carbon particles, that is non-diamond-bearing, that could be recovered. We did see some of that, but overall, quite good yield on these machines. The question for me is not is it XRT versus XRL. It's really a case of, we're busy with that exercise now to see whether it is feasible to implement a second stage in the diamond recovery, large diamond recovery circuit at Cullinan, whether it's XRT or XRL. That's really, in short, a little bit of a feedback on Project 2022, and we're looking forward to the successes of Project 2022 with regards to continuous business improvement, post June 2022. Thank you, Richard.
Thanks very much, Juan. Right. As part of this journey, we have been looking at refreshing our culture at Petra. It's very difficult to reposition a business without focusing on culture. You're not able to shift the business if we don't have an engaged set of employees and people working with us to deliver the opportunities we see in the business. I'm not gonna go into detail on this slide, but it really has been around inspiring our employees through empowering them with clear accountabilities to enable them to work together to deliver on our strategy.
Values-driven leadership and doing the right thing are central to ensuring that we build a culture that is supportive and one that ensures we have a fully engaged set of employees who are happy to provide discretionary effort in taking the business forward. Our operating model, that's a busy slide, but really all that is saying is that we are structured around service delivery to our operating sites from the group and the functions. This is consistent with a simple model around well-defined roles and objectives, clear accountabilities and authority, and driving performance management as a result of that to ensure we deliver on our company strategy. Just touching on our redesigned org structure.
In my introduction, I did mention that we had reintroduced the Chief Operating Officer role. We have appointed Jason as the Chief Operating Officer, so he will be heading up the Finsch and Cullinan operations going forward. The rationale behind that was to really allow us to leverage our more centralized model with GM roles that are more focused on the operations directly, with support from a better-enabled group and group functions around the non-operational services that we will deliver. If you like, the GM role is a narrower, deeper role with a clear focus on the operations at the mines. You will see that we have Koffiefontein reporting into Juan as the Chief Technical Officer, and that's really because we're treating Koffiefontein as a project.
It's a near-end-of-life operation. We need to focus on looking at managing that operation to closure, and at the same time, we're looking at opportunities to potentially exit the asset sooner. The other areas that are relatively new but have been in place for a while is we have General Counsel, which is Rupert, and he'll talk in a minute to our risk and assurance approach in the business. It's really about ensuring that we integrate and incorporate risk and assurance into how we run the business. It's not an adjacent activity that sits alongside the business.
It is part and parcel of how we run the business, and that's aligned with increased focus on governance that we see and expectations around governance that we see from our shareholders and other stakeholders. Human resources and public affairs also been in place for a while under Tashmi, but I will talk in her absence to the focus we have around our new sustainability framework and step you through that. I'm really excited about the work we've been doing in that area. The structure we believe will enable us to appropriately lead the business going forward. You will see that with Tanzania and the announcements around the MoU that we made as part of our trading update.
Tanzania and Williamson will increasingly be managed and run through the Williamson board. Obviously, it will still be supported technically and on the sales and marketing side by the group itself. A fit for purpose structure that will leverage where we've got to as a business and take us forward in terms of capturing future growth opportunities. I'm now gonna hand across to Rupert, and he's just going to take us through our risk and assurance in the business. Thanks, Rupert.
Thanks, Richard, and good morning, everyone. As General Counsel and Company Secretary, one of my key areas of responsibility is overseeing Petra's risk and assurance function, which has undergone significant transformation in the last 18 months. At the heart of Petra's new integrated risk and assurance approach is a new enterprise risk management solution, which you can see in blue on the slide, that involves a bottom-up identification of Petra's risks. This is supported by an excellent software tool that we have called Cura. Over 200 risks have been identified across the group, and they are being proactively managed by Petra's risk owners through risk mitigation plans on an ongoing basis.
They form a key part or key factor in management's everyday decision-making, as you heard from Richard earlier on. These risks are aggregated and then reviewed frequently by management, the Audit and Risk Committee, other Board committees, and the full Board. This review includes identifying and monitoring emerging risks, including fast-changing and escalating risks, and determining Petra's risk appetite. That's the blue box. Enterprise risk management also forms the central pillar for Petra's combined assurance model, the top box on the slide. Combined assurance at Petra involves the traditional four lines of defense model to ensure there are effective risk controls across the group. The maintaining of these controls is fully integrated into Petra's enterprise risk management solution.
Then in turn, we move down to the very bottom, internal audit. The enterprise risk management solution is key to informing internal audits planning and execution, with internal audits also forming the key third line of defense in identifying any control weaknesses across the group. Finally, moving up one box to regulatory and legal compliance. Petra's enterprise risk management solution helps to identify the key legislation and regulation that Petra is subject to. The current focus is South Africa, but this is being expanded to cover Tanzania and the U.K. Online tools are used to ensure that Petra complies with these laws and regulations fully, including through a clear allocation of responsibilities.
I'm now going to take us through our sustainability framework that Tashmi would have taken us through, had she been able to join us here in person. I think just in introducing this, we have taken our time in coming up with the sustainability framework simply because we felt we needed to invest the necessary time to ensure that we have a framework that caters for what is an increasingly complex space in terms of what is expected from our stakeholders in the broader sustainability area. Obviously measured through the ESG lens, with various agencies and organizations that monitor this.
What we've done is we've come up with a sustainability framework that we hope caters for all of the key areas around the broader sustainability area. That allows us to carry out and report effectively on the various ESG and regulatory requirements that companies and mining companies in particular are required to meet. The sustainability framework really forms an integral part of the company's strategy going forward. It covers, as you will see, what we believe are the main components of sustainability. Just to very briefly unpack this framework, we've identified four pillars that I'll talk you through in a minute.
Each of these pillars, we unpack aspects which are the main elements of each of these pillars. We then look at focus areas in each of the aspects, and those describe the main activities and commitments. Targets obviously then inform that. KPIs track how we're doing against those targets. We have initiatives and projects that we roll out to ensure that we can deliver against our KPIs and targets. Just to give you a heads-up on where we are currently. We are looking to complete the sustainability framework by the end of our financial year.
We are then looking at, and you'll see as we go through this, to identifying targets and initiatives that we will do through the balance of this financial year as well, before we start to look at reporting and disclosure, which will be going into our next financial year. I'll unpack that, as we step through this. In terms of the four pillars that we've identified, the first is valuing our people, respecting our planet, delivering reliable production, and driving shared value partnerships. You will see that those pillars are all surrounded, if you like, or encircled, by a commitment to ethical and responsible business practices and good governance. Governance is t he G in ESG is often, appears to be missing. Importantly in our model that is really part and parcel of everything that we do. Also important is constructive and transparent stakeholder engagement in everything we do in the sustainability area.
If I then just unpack the aspects around each of these pillars as we look at the four pillars, so people, planet, partnerships, and production. I won't go through all of that, but if I just focus on the people pillar, what you see is the aspects cover safety as you would expect, health, hygiene and wellness, diversity and inclusion, and training, development and upskilling. Again, if you look at the bottom of that graphic, you will see that continuous improvement is part and parcel of our sustainability framework, and of course, the same governance aspects around ethical and responsible business practices as we go through all of this.
If I then go on to how we incorporate the Sustainable Development Goals, the SDGs. We have selected five SDGs, as you can see on the screen in front of you, and we've done that deliberately to enable us to make a difference in these key selected areas. However, it's important to also note that in focusing on these, they in turn provide positive contributions to the wider range of SDGs, which includes No Poverty, Gender Equality, and Reduced Inequalities, to name just a few of them.
It is important for us to be able to focus on a manageable set and we believe that these five allow us to do that. It fits in very well with the sustainability framework as I've highlighted. Just as an example of how this all works, if you have a look at the slide, we've got the pillars, and we've just for illustrative purposes selected the planet pillar here. If we use this as an example and we're focusing on our planet pillar, one of the aspects would be water management. We would have a focus area, for example, around optimizing water consumption. We would set ourselves a target of reducing potable water consumption by 10% in five years.
We would establish a set of KPIs to manage or track how we're doing against that particular target. As an example, one of the initiatives or projects would be to build a water treatment facility. This is just illustrative in terms of how we will apply the framework through the structure of pillars all the way down to our initiatives and our projects. If I then turn to climate change, and this is really an increasingly important part of business generally, and certainly for mining companies, and we've seen a lot of focus in this space. I think in introducing this, it is worth noting that diamonds are low energy consumers relative to the broader mining industry.
We don't consume as much energy as the more energy-intensive mining businesses that are outside of mining. I think that if you look at Petra, our emissions are heavily weighted towards our Scope 2 emissions, which is reasonably easy to explain because our power is generated by Eskom for our South African operations, which are the bulk of our operations. Most of that power is coal-fired, coal-based. We do expect to see this improve over the coming years as Eskom decarbonizes. South Africa has committed to net zero by 2050.
On our side, what we're looking to do is to commit to net zero by 2050, but also our aspiration is to reach that by 2040 or earlier. That's work that is ongoing at the moment. We will release our emissions reduction targets for 2030 in our annual report for this year, our FY 2022 annual report. In terms of our sustainability performance, you can see that our focus has been on improving diversity, both racial and gender, through our employee development programs. We do invest substantially in our people, both employees and via various community projects. We are working continuously to improve on our water and energy efficiency.
I should note that, in 2021, you can see in particular that, our energy efficiency has ticked up in 2021. The main reason for that is on a relative basis, Williamson has come back on stream, and in 2020 was in care and maintenance for the full year. There was no energy consumed, well, very little energy consumed by Williamson because it wasn't producing and mining. On a relative basis, 2021 looks to be up. But that is really because, Williamson was in care and maintenance. Then in terms of our various tracking against environmental incidents, we haven't had any major or serious environmental incidents over the last five years.
That is also testimony to our focus on ensuring that we look after our environment. If we shift to our focus around transparent engagement, which I said was a key component of the sustainability framework. We need to engage transparently and openly with all of our key stakeholders. This sustainability journey for us is not a new thing. We've been on this journey for a number of years. I think it is fair to say that it's become increasingly important but wanted to highlight that this isn't something that Petra's starting here in 2022. We've been at this since 2008 in focusing on key areas of our business.
What we set out here is our priority in terms of this year, and that's highlighted in the blue blocks at the bottom. The first is what we're discussing here today, the implementation of the sustainability framework. It's then assessing our adoption of the Global Industry Standard on Tailings Management, which is a key focus area for all mining companies. Then also we've started work on becoming a certified member of the Responsible Jewellery Council, RJC. I think also an important step as part of focusing on the provenance of natural diamonds. As I mentioned, we've highlighted the emissions reduction targets for 2030 that will be in our annual report.
Hopefully that gives you a sense of where we are in terms of our sustainability framework and our sustainability journey. You will hear a lot more about this as we implement that framework going forward. I'm now going to switch to talk to our operations. Again, this is something that Jason would have picked up. We didn't want to challenge technology by doing this virtually, so you're stuck with me, unfortunately. Jason is available for Q&A on the back end of this. Starting with Cullinan, which is our flagship operation. It is a unique mine. As you all know, Cullinan's renowned for producing very large white diamonds, and it is the world's most important source for blue diamonds.
It also is still one of the largest resources globally in terms of diamonds. Although it's been operating since 1903, we still have a resource of some 150 million carats at Cullinan. Cullinan really is a success story if you go back and look at the acquisition that Petra made. It was at a time where significant recapitalization of the mine was required. It required the development of new mining areas, and it required a new plant. Neither of those trivial activities. Petra established the new C-Cut and built a brand-new fit-for-purpose plant. As you heard Juan talk to earlier, the plant certainly has proven itself.
There were some questions in 2019 when I joined around the selection of XRL over XRT, and I think we've more than ably demonstrated that the plant is doing its job. But it wasn't just the plant, it was also about establishing the C-Cut across the footprint of the ore body. The reason there was a bit of a paucity of large Type II diamonds being recovered in 2018, 2019 was simply that the C-Cut was not yet established across the full footprint of the ore body.
Just to remind you that, which I'll talk to a little later, the C-Cut is really the source of the Type II diamonds. The Cullinan is an example of how the application of Project 2022 helped stabilize the business and then optimize it to producing 4.4 million raw tonnes a year. If you look at the mine, and that's just a schematic cross-section of the operation currently, you can see that at the moment, all of our production is coming from the C-Cut, a block cave on the western side of the mine. We will see CC1 East start to contribute from our financial year 2024.
The CC1 East is not surprisingly on the eastern side of the mine. The board did approve the CC1 East project in November of last year. The importance of the eastern side of the mine in conjunction with the west is that, as I mentioned earlier, the western side is where we find the larger Type II diamonds, which are the high-value stones. But on the eastern side, although we don't have the Type II diamonds, the grade is higher. The combination of the higher grade on the eastern side with a slightly lower grade on the western side, but with the sizzle factor around your large Type II diamonds, really makes for the best balance in terms of a Cullinan.
The current mine plan on the back of approving the project will ensure that we are able to execute the mine plan through to 2031. As I turn to the next slide, what we're highlighting here is the ongoing opportunity that Cullinan presents. Although the latest project takes the mine plan to 2031, that's not the end of the Cullinan story by any means. You can see that there are a number of opportunities for us to further exploit the resource in converting that to reserves, and in particular, the Centre Cut. The Centre Cut sits between the C-Cut block cave on the western side and the CC1 East sublevel cave on the eastern side.
The reason that wasn't exploited previously is that at higher levels, at higher elevations, that Centre Cut had a high internal waste content. As you go deeper, we've established that that waste reduces. There are opportunities, and we're likely to do that, to put a tunnel or two into the east of Tunnel 41 in the C-Cut, to be able to get a better understanding of the ore body in the Centre Cut. That presents probably the nearest opportunity in terms of further expansion and continuing to exploit the Cullinan resource.
Important to note as well is in looking to further convert resources to reserves at Cullinan beyond 2030, we are going to need to look at a new shaft, and that work is all being done in conjunction with evaluating the potential of the Centre Cut and the D-Cut. The key message here is that, you know, Cullinan has considerable potential beyond the current sublevel cave project on the eastern side of the mine, and we will continue to evaluate and develop those projects to ensure that we fully exploit this very unique ore body that we are lucky enough to own. If I turn to the Cullinan guidance slide, I'm not going to go through this in any detail with you today. It is available on our website.
Essentially, what we're looking to do is to maintain throughput at over 4 million tonnes a year, and you will see that will pick up a little in 2024 as we bring CC1 East on stream. It really is about optimizing the operation through delivering the new project, and at the same time, looking at opportunities to be able to further extend and expand the operation. We did provide information on the project, the CC1 East project, just to touch on that briefly. Total project cost of $173 million, projected IRR north of 30%, with an incremental NPV of some $70 million.
If we turn now to Finsch. Finsch is the other key engine room in the Petra stable. Again, we're just setting out a snapshot of the operation and the highlights around the key metrics for Finsch. We have built the operation up to around 3 million tonnes a year. We did have an issue, as we mentioned last year, around waste ingress, which has now been effectively mitigated. We have had a much better start to this financial year than we saw ending financial year 2021. Although Finsch does not produce the exceptional stones that a Cullinan does, it produces a very high-quality commercial good diamonds that are always in high demand and in the current market, particularly so. Again, if we just briefly step through the operation, just to give you a sense of what it looks like.
Again, we have a cross-section of the current operation at Finsch. We are currently mining from a four-level sublevel cave that we established after acquiring the mine in Block 5, and we've been exploiting that since financial year 2019. At Finsch, one thing that is different to Cullinan. We did talk about our business re-engineering project that we stood up at both Finsch and at Koffiefontein. At Finsch, the reason we did that was to really offset the impact of the waste ingress that we saw at the mine. That was focused on restoring an EBITDA margin that we felt was acceptable for Finsch.
That business re-engineering project is, design phase is now complete, and we're busy looking at implementing the project to ensure that we're able to lock in a higher margin at the operation. We're confident that we will successfully do that. Also, at Finsch, the board approved the three-level sublevel cave project there, which will contribute production from financial year 2025. The mine plan as a result of the project goes through to 2030. Total project cost of $216 million, IRR also north of 30%, and an incremental project NPV of $90 million. Both of those projects at Cullinan and Finsch, we've talked about on numerous occasions previously.
They are now in implementation, and importantly, those projects will all be funded from funds generated internally by Petra. If we continue with the Finsch story, in terms of future opportunities to continue to exploit the resource at Finsch, you can see that there's an area below the existing Block 5, lower Block 5, which is where the project is focusing in Block 6, which presents opportunities for us to expand and extend Finsch's operating life. There's also opportunity in the precursors on the western side of the mine. Those are fairly narrow blocks, but there are opportunities that we're looking at there in terms of how we might also exploit those precursors.
Finsch guidance, again, not going to go through that in any particular detail available on our website, along with the guidance for all of our other operations. You can see that we step up our production up towards the 3 million tonnes a year. That's sort of the steady run rate that we see. As the project comes in in 2025, we'll see some uptick in terms of ROM tonnes produced from Finsch.
Turning to Williamson. Williamson had been performing very well prior to the outbreak of COVID. When COVID hit and prices collapsed, then Williamson, as a low-margin operation, was unable to operate economically, which is why we took the decision to put it into care and maintenance. Prior to that, it's important to note that the mine had reached its highest level of production in over 40 years. It is also an operation that has a significant resource, and the resource is the key reason why we opted to enter into an MoU that provided us with exposure to that potential upside but also allowed us to de-risk our position in Tanzania, and I'll talk to that in a short period.
Snapshot of the operation. It does have a significant resource, nearly 38 million carats. It is the largest operating open pit diamond mine in the world currently, in terms of surface area, not in terms of production. If I move on to just a refresher, again, I'm not gonna spend time on this, but this sets out the ownership structure. I know we dealt with this in our trading update, but essentially, we're just highlighting the transition from the current ownership that we have at 75% through the framework agreement with government. Once it's effective, that would take us to 63%, with the government of Tanzania at 37%, and then the MoU with Caspian reducing our share to 31.5%, but with an additional share that ensures we retain control of Williamson and enter into an arrangement with Caspian, who know the asset very well.
They're a well-established Tanzanian company, and we think that it's a relationship that will benefit both ourselves and Caspian. In terms of future opportunities, this is just a cross-section of Williamson. The light blue portion shows where we're currently mining, and the mine plan, as it stands, goes through to 2030. That is when the current mining license expires, and we would look to extend that beyond 2030, but that's the reason for the mine plan going through to 2030. The resource and the ore body supports a considerably longer potential life than that. Again, not going to spend too much time on this, but just to illustrate that Williamson does have potential in terms of growth and expansion going forward.
Williamson guidance is also set out on our website and on the slide, really looking at production once we've ramped up again to be between sort of 5.2-5.5 million tonnes a year over the guidance period.
Koffiefontein. Koffiefontein is our oldest operation. It's been operating since the 19th century. It's a small mine, but it has delivered some very good quality stones, which is why it was acquired by Petra initially. As you would have seen, we have been battling with Koffiefontein in terms of getting it to a cash break-even position. We implemented a business reengineering project there aimed at specifically delivering a cash break even, and that work is ongoing in terms of implementing that project. As I highlighted when I explained the new organizational structure, that Koffiefontein will report into our Chief Technical Officer, Juan, and will be run as a project as we're looking to ensure that it is either managed to closure or we will look at opportunities to exit prior to the closure.
If we look at Koffiefontein, you can see that there is still some resource left at Koffiefontein. The challenges, and it's been that way since the mine's inception, is around the economics of exploiting the resource and converting the reserve. We've provided some guidance for Koffiefontein as well. Again, you will see that the run-of-mine production levels are lower, and that also contributes to a slightly longer life through to closure. The business reengineering project has focused on how we manage that process. That brings us to the end of the operational overview. We've run through that quite quickly, but hopefully it gives you a sense of the assets we have in our portfolio, and I'm sure we'll pick up some further detail in Q&A.
The summary of our guidance before I hand across to Jacques again, which you would have seen really sets out production or carats recovered between 3.3-3.6 million carats through to FY 2024, increasing closer to 4 million carats in 2025 as our projects that I've spoken to start to deliver additional tonnes and carats. Cost guidance is provided fairly stable between $300-$320 million. Expansionary capital is also provided together with sustaining CapEx, and we've provided some guidance around capital beyond 2025 in terms of completing those projects together with some additional infrastructure capital. With that, I'm gonna hand across to Jacques, who will talk to our marketing and sales process before he talks to our financial framework. Thanks, Jacques.
Thanks, Richard. Turning to our marketing and sales. Firstly, Greg Stephenson, our sales executive, would have presented this. He's unfortunately not available. He's attending the Diamond Conference in Dubai at the moment, on behalf of Petra. Our sales and marketing process, all South African goods are moved to our facility in Kimberley. We always keep the mine's goods discreetly separate. We never mix any of the diamonds. Goods are cleaned and sorted, and you could see on the photo, typically a layout of Cullinan, which is presented on the slide.
Larger parcels is then split further, where we would then typically offer for Cullinan up to 80-100 parcels for tender at each one of our tenders, which typically happens 7 x a year. High-value goods are, as can be seen in the front of the photo, would be sold separately as individual sales lots, and then the more commercial and smaller goods are offered in slightly larger sales lots. The way we sell our goods, we are quite confident that it gives us the ability to effectively wash out the highest value at any given point in time when our goods do go out on tender. We are obviously exposed to diamond market movements immediately.
We are price takers, and we see in a declining market the first of a downward trend, but what we currently have in an upward market, we also benefit from a rising trend immediately in our tenders. Typically, as I said, seven tenders per year, as shown in the schematic at the bottom of the slide. We do remain quite flexible on that, and we may change the timing of tenders depending on situations. We have seen quite a bit of that happening over the last two years since the pandemic outbreak. We also, since 2020, with the outbreak of COVID, we've had all of our tenders happening in Antwerp.
We have now in February of this year we are currently hosting a tender in Johannesburg for the first time in two years whereby our South African goods will be sold through a tender there. Williamson goods follows a similar process but are then shipped to Antwerp where it's sold under supervision also in participation by representatives from the government of Tanzania. I think importantly as I started off saying we have seen an increasing trend of recovery of these stones. It coincides with the increase of the C-Cut mining area delivering most of the tonnes to the plant. We would expect a higher incidence than we've had since the acquisition of the mine but not necessarily at the same level that we've seen in this H1 period. It's quite difficult obviously to predict the incidence of these stones.
Want to just be careful not to inadvertently assume that we will see such high incidence going forward. We have highlighted on the slide the last three and five-year averages of $47 million and $37 million per annum from revenue from these stones. As we've highlighted, H1 2022 contributed $64 million from Cullinan in the six-month period. Apologies, that's the wrong way. Moving on to our financial framework. Firstly, the evolution of our debt or capital structure, specifically, in the last 14-15 months. We started or ended December 2020, I should say, with gross debt of $814 million, made up of $705 million of our $650 million bond at that stage, plus accrued interest.
We also had first lien banking facilities of just over $100 million, comprising BEE facilities, revolving credit, and working cap facilities. End of December of this year, we ended gross debt of $426 million, thanks, firstly, to a capital restructure undertaken last year, reducing our bond debt down to $346 million, and banking debt still around the $100 million mark. Post period end, we've settled our RCF completely, as a first step towards refinancing our first lien debt. That's just about completed. Looking forward to March of this year, we should have only bond debt on our balance sheet as third-party debt, with an undrawn RCF facility of some ZAR 1 billion coming into play.
In terms of our capital allocation approach, the first order of allocation will obviously be to just ensure that the operations are fully able to carry on a daily basis with operational and OpEx as well as sustained business or sustainable CapEx being funded. Our debt service obligations, primarily our interest. As a reminder, currently our interest on our bond is PIKed, and cash payments will start in June of next year. Cash will obviously be set aside to make sure the cash interest is then settled.
Second order of allocation will move into expansion projects like we've Richard has expanded on just now, specifically the Cullinan and Finsch expansion projects recently approved, with possibly further brownfield expansion opportunities at our existing asset portfolios. We've talked about significant resources, specifically at Cullinan, but also at some of the other mines which could warrant future capital allocation. Further growth projects including inorganic as well as corporate opportunities would be considered thereafter to further grow Petra's asset base. Turning to our debt early redemption, first lien, which we've effectively started to undertake already. Second lien debt redemption would be a strong focus area for Petra going forward.
The dividends to shareholders is then an item which will follow in that order of priority. Discretionary allocation, that's obviously after both the first and second order allocations have been fully met, could include special dividends in specific circumstances to be considered by the board as and when it arises, as well as any opportunistic growth opportunities for Petra when it obviously makes sense. With possible share buybacks as a potential source or potential allocation of funding towards the end of our allocation process. Focus for us is obviously to continue to strengthen our capital structure.
Importantly for us, our CapEx projects, which we have approved and is currently in our mining plans, as well as certain unapproved CapEx, which we've highlighted in the process, is all projected to be internally funded. We are committed as a board and as a management team to further reducing our gross debt levels. We also will be looking at opportunities to improve potentially on our second lien debt structure as well going forward. We've set ourselves a target to maintain leverage below 1.5x EBITDA. With discipline capital allocation, as we stated to maximize value generation, ultimately leading to attractive shareholder returns for their benefit. Yeah, I'll be handing back to Richard again.
Thanks very much, Jacques. Now in closing, turning to our strategy on the back of all of this, what we're saying now is that we are well-positioned to now focus on driving a on pursuing a value-driven growth strategy. Obviously the focus, as Jacques highlighted in his capital allocation discussion, is around funding our current operations, optimizing our current operations through our operating model, delivering on our brownfields projects, and looking to further expand and convert resource to reserve at our existing operations. Then being in a position to look at opportunistic inorganic activities, corporate opportunities in terms of further growing our business. There are really eight key strengths that we're looking to leverage in terms of our growth strategy.
We have skills and expertise around diamond mining at scale. We have bulk mining skills and in particular underground mining skills. I think we have demonstrated strong sales and marketing skills. We operate in a number of challenging environments and have navigated some of those difficulties, I think, pretty well. We have a model where we've acquired old assets, we've partnered, and I think we've established credibility in that broader space. We're well established. Our roots are very much entrepreneurial, and we still hold on to being agile and quick in decision-making to take advantage of any opportunities.
We'll continue to look to apply our experience in terms of optimizing assets, whether they're in the existing portfolio or any future assets that might come into the portfolio. Really what we're looking to develop is a healthy project pipeline, a healthy project funnel. I'm not gonna go through all of that detail, but obviously what we have at the narrow end is all of the existing operations and brownfields projects.
As you move through that funnel, we would want to see projects that are in the feasibility and pre-feasibility stage, as well as a greater number of opportunities at the open end of the funnel, that we would assess, and analyze and then filter through, to ensure that we have a robust growth pipeline to ensure a long future for Petra well beyond the existing mine plan lives would indicate. When you conclude all of this based on the presentation we've given, this is how we see our value proposition as Petra going forward. I think that we've demonstrated the performance and stabilization of the existing asset base and the optimization of that through Project 2022. We've shared with you our new sustainability framework that will be an integral and important part of our strategy going forward.
We have the third-largest diamond resource globally, in a market that is currently very supportive, but also with reducing global diamond assets, which we discussed. Our brownfields projects that were approved by the board all generate substantial returns north of 30%. We are following a value-driven growth strategy that will look at both organic and inorganic growth opportunities. This is all off the back of a significantly strengthened financial platform, where we are in a position of generating significant cash flows. Our net free cash flow, as we've indicated, is set to exceed $200 million for this financial year. Our net debt is considerably down. Our balance sheet has been effectively reset.
We have a disciplined capital allocation approach to further reduce debt and ensure that we are able to grow the company sensibly to the benefit of all of our stakeholders. I think the final point to make is, with the diamond market that is likely to continue to be supportive, we will be able to leverage the hard yards we've put in the preceding years in getting through a very difficult period, both for the market and for Petra, specifically around the capital restructuring that we can really exploit in a supportive market going forward. I'd like to thank you very much for your patience in sitting through what has been a long presentation. We will now move to Q&A.
I'll ask my team to join me, and we also have Jason and Tashmi in Johannesburg who will be able to answer questions. As I mentioned at the start, we would like to begin with questions from those here with us in London. We'll then go to the participants on the conference call. Finally, we'll take any webcast questions that may have come through. Thanks again, and we'll go on to Q&A. Starting from in the room.
Hello, good morning, everybody. First of all, thanks for the presentation and congrats on a solid set of our first half of fiscal 2020 results. It's been a significant turnaround since the debt restructuring at the beginning of 2021. I have three questions, if I may. Starting with your ESG targets. You did talk about emissions reduction targets but just wanted to see if there's any projects that are in the pipeline with respect to investing in renewable energy. Some of the mining companies in South Africa have looked at solar as an option. I just wanted to see what your thinking is on that.
My second question is on the Cullinan CapEx, and I'm not sure if I'm comparing apples to apples, but compared to the guidance you had provided in mid-2020, the expansion CapEx seems to be up quite significantly. Just wanted to get a sense of how much of that is being driven by inflation versus scope changes or new projects. My last question is on the Finsch production profile. I do see that the grade profile seems to be dropping slightly over 2023 to 2025. Is that a function of where you are mining? Also, is the production that you are guiding around 1.3 million carats conservative?
Is there a pathway to getting back to the 1.7-1.8 million carats that you were doing in back in fiscal 2019, 2020?
Thanks, Raj. I'll start in talking to your question on ESG, and Jacques can pick up on the CapEx. I'll hand across, and then we can talk about Finsch. What we will be doing is we will announce our targets around emissions by the end of this financial year. What we've said is we're committing to net zero by 2050, with an aspiration to reach that by 2040 or earlier. That's work in progress. How we will do that, we're looking at a number of opportunities. Renewable energy is certainly one of them. South Africa has a great solar resource, so that is one of the opportunities we're looking at.
We're also working on further research into carbon capture through kimberlite, which is a natural carbon sink. That presents certain opportunities for us. There are a range of things we will be looking at in terms of reducing or offsetting our carbon emissions. The sustainability framework we took you through provides us with a mechanism to ensure that we do that, and that all of this is done in an integrated way. Handing across to Jacques on the capital at Cullinan. I'll let him go through that, and then I'll come back to Finsch.
Thanks, Richard. I just want to confirm, like, can you hear me? The Cullinan CapEx, it needs to also be seen in relation to the Finsch CapEx. Just to give you the full picture, the Finsch CapEx has reduced quite a bit compared to our 2020 guidance, which you referred to, with the move to a sub-level cave as opposed to a block cave. The Cullinan CC1 East CapEx remained largely in line. However, there's infrastructure projects which we included in the capital for Cullinan now, which will, it's basically a slimes dam, and Juan can talk to more detail. But it's expanding our slimes facilities, both for the current life-of-mine plan period, as well as then servicing the life beyond the current window as well, potentially.
The second project, which we included, is a vent shaft or new ventilation shaft required at Cullinan for adequate ventilation at depth. Similarly, that will be available post the current window as well, should the mine be extended further. Both these projects are currently still unapproved by the board, but it is required to ensure the life is delivered. As mentioned, both these will also support the mine in years thereafter. Total capital is around ZAR 1 billion for these two projects. ZAR 700 million of that is likely to be or is currently forecasted to be spent in the guidance period, and the balance in the year or so thereafter.
Then finally on Finsch. Really what we've done is you'll see that we've set throughput at you know around 2.9 million-3 million tonnes. We've had to accommodate the issue around the waste ingress into our model going forward. That was really why we introduced the business re-engineering project. Because we are talking about a slightly different profile for Finsch, and we needed to ensure that we had a matched cost structure. That was the focus of the business re-engineering project. We're in the implementation stage. The focus areas are specifically around ensuring that we get our tunnel availability up to where it needs to be. It's ensuring we mine to plan so that we manage any future waste ingress.
It's also importantly around revisiting our shift configuration. That's the work we're doing currently is around optimized shift configuration against a profile of around 3 million tonnes a year. The grade reflects in a sense where we're mining, but also some of the waste ingress. Importantly, you know, we'll continue to look to optimize around that. That's our best sense of the operation going forward. Business reengineering project was aimed at restoring a + 30% EBITDA margin. That really is where the focus is and we confident will deliver that.
Thank you.
Thank you very much for the presentation. Just two questions from me. You sort of alluded to it, my math is not very good in terms of rand to dollars, but you increment, incremental $300 million, ZAR 300 million being spent post-2025. That's roughly right, is it? That's to keep the mine's life of mine till 2030, 2031 for both Cullinan and Finsch.
That's all. Mine plan to be as well, to continue to that point. Importantly, both the infrastructure project specifically will also remain available to support the mine after.
Beyond that, yeah?
Yeah.
How do I think about production from 2025? Do I see grades? Do I see production go down? Or do you think the mine stays at the same production until 2030?
Yeah.
I'm trying to get a feel for free cash flow. I know, you know, you're doing a phenomenal job sort of balancing out your guidance for 2025, and I'm being a bit greedy. I'm trying to get a feel for what free cash flow is from 2025 to 2031.
Yeah.
It feels to me like the business generates a huge amount of free cash flow going forward.
The business, yeah, will continue to generate cash flow going forward. Obviously, what we'll be doing post the guidance period is we would continue to look at opportunities to invest in organic growth. You should expect us to bring projects that are currently in sort of pre-feasibility or scoping. For example, at Cullinan around the Centre Cut and the D-Cut and the new shaft, those would progress. The same with Finsch in terms of opportunities. There may be other growth opportunities that we will be evaluating through the period. It's quite difficult to give you a static view of the business because it won't be, if I could put it like that. You should expect, and that's why we've said it's a, you know, a value-driven growth strategy.
We're not looking to expand for production sake. What we're looking to do is to grow the value in the business through optimizing the current operations, exploiting brownfields growth opportunities, and looking for accretive opportunities outside of the current portfolio. You know, if we were to do nothing else other than mine the existing ore bodies and not spend any more capital, yes, you would see significant cash post 2025 and then a decline in production because you're not reinvesting in the assets. That's not the intended plan. It's to ensure that we can both grow the business and return value to shareholders through the cycle.
If you use maintenance CapEx rather than growth CapEx.
Yeah, you could-
Does production stay flat?
Sure. Yes, but it would start to tail towards the end of the current mine plans, you know, 2030, 2031, because you're not investing any expansionary capital. So that's not the business model for Petra isn't-
I understand.
Yeah. It's not to run the assets to closure. You should expect us to balance returning cash to shareholders together with accretive growth opportunities going forward.
Other questions from London.
Sorry. Thank you. Looking at your CapEx profile and your production and cost guidance and price assumptions, do you expect to delever between now and 2025, given the falling due of cash interest next year?
Firstly, on prices, we don't give any revenue estimates or revenue guidance. It's just really difficult and to contemplate where the market is going. From a price, and therefore revenue, EBITDA, and cash flow generation, we don't really guide other than the metrics that we've highlighted. We would expect to continue to delever. Our indication is that our cash flow generation fully funds and exceeds the capital requirements in the business, in this guidance period specifically, which is the next, let's call it, peak of CapEx requirements. Yes, we would expect to continue to reduce debt.
Also just to comment on that, it's why we've said, you know, we want to run the business at a net debt to EBITDA of 1.5x or less. Obviously, when we're spending capital, there may be periods where you see that increase. You should assume that having been through a capital restructure, we're quite sensitive to debt levels, and we'll continue to ensure that we manage that appropriately. There may be periods when we investing the capital where you'd see that leverage increase, but Jacques is quite right. You know, through the cycle, what we're looking at is deleveraging the business.
Thank you. Sorry, and then, w hy have you cut grade guidance for Cullinan in 2022? What drives the grade improvement into 2025?
At Cullinan, the C-Cut, which is on the western side of the ore body and also host to the Type II high-value stones, comes at a lower grade than the eastern side of the ore body, which is CC1 East. What we're seeing at Cullinan is as the CC1 East project ramps up, so you start to see the contribution from the higher -grade eastern portion of the mine. Your grades start to increase as the project starts to deliver. In terms of, you know, the grade is slightly lower this year in financial year 2022, but not significantly. It's sort of between the 36 to 38-39 level before CC1E starts to contribute.
One more if I could.
Sure. You've got the mic and you're holding it.
Yeah, I'm not giving it back. Does your cash cost guidance and G&A include corporate G&A, or is this just on mine G&A?
It does include corporate G&A as well.
Thank you. I'll give it back.
Just a very quick one. Yeah.
Can you hear me? Wage inflation and utilities. You know, everybody around the world now is being hit by high oil prices, et cetera, et cetera. I'd like to know roughly what you're thinking or what you're factoring in, and whether it has actually any major impact basically on your cash flow of wage inflation, i.e., at your arrangements actually with the unions, and utility, particularly obviously electricity. Have you got any plans for the future, maybe of actually being slightly more independent, basically, of the mainstream electrical supplier?
Certainty. Just on labor. Labor accounts for some 45% of our all-in cash cost. It typically increases by 2%-3% as much as in the lower levels above CPI on an annual basis, with higher more expensive labor reducing or increasing at closer to CPI. We do expect a real increase in labor. The guidance that we have provided already factors that in the percentage points. We have the real increase there above CPI as mentioned. On the electricity front, it accounts for some 15% of our cash all-in cost. We are expecting it to go up by double digits in the short term, as per the discussions around Eskom.
It may continue to do that for a while, at least high single digits, is what we have provided for in our internal estimates. I'll let either Juan or Richard touch on the other.
Yeah.
The issue around alternative energy sources, you know, I guess it's not just around carbon emissions or carbon offset, it's also around good business practice. You know, certainly, alternative energy sources, primarily renewable in the context of South Africa, is something we actively looking at. I would just like to flag that does not mean we would be investing capital in solar projects. We would be looking at the model of using a IPP, independent power producer, and entering into power purchase agreements rather than invest capital into these projects. The model is well established. There are opportunities, and we are looking at them.
Hello. Thanks for the presentation. I just wanted to get some color on the comparative quality of the covenant packages between the previous terms and new terms of the debt facility. Are they tighter, lighter?
Yeah, sure. It's set out in the slide deck as one of the appendices on page 73. Speaking to the first lien debt specifically. Currently we have a debt service coverage ratio. We have to maintain a cover ratio of 1.3x or less. The new covenant packages will move to a more appropriate leverage-based covenant. We need debt-to EBITDA, and the levels are set out there, on slide 73, starting at 4x and reducing to 3x over a period. We're looking at both our current leverage as well as our projections internally, we feel there's adequate headroom in these covenants. There's also an interest coverage ratio, again, relative to EBITDA, which is also set out on slide 73.
Probably also worth adding, Jacques, that in replacing the current facility with the new first lien will result in about a $5 million–
Saving.
Saving effectively over what would have been the remaining period of the first lien. It generates real value for the business in the refi.
Yeah, true.
Thank you.
Anything else from London?
Just have a follow-up question, if I may. I know I keep asking you this question. Capital returns is something that some investors are starting to ask about. I know it's not entirely in your hands because some of the restricted covenants in place. Given the significantly improved financial condition of the balance sheet, is that a discussion you're starting to have with your lenders related to relaxing some of the covenants around that?
Raj, we've not yet approached, 'cause the restrictions you are mentioning is mostly based in our second lien agreement. We have not approached the second lien lenders up to this point in time. We do intend approaching them when the timing is appropriate. I think that's where we can leave it for now from that perspective. The intention is to be in a position to declare dividends if it makes sense, and if the business can afford it effectively.
Thank you. Should we turn to any questions from participants on the conference call?
As a reminder, to ask a question over the phone, please press star one. There are no questions at this time.
Thank you.
Through the web.
It doesn't appear that we have any questions via the conference call participants. I believe we do have some questions...
Yep.
...from participants on the webcast. Jill, are you going to read those out for us?
I'll read these out, yeah. So one from Dylan Simmons, and he's asking: Can you break down some of the assumptions you're using for the greater than 30% IRR on the Cullinan and Finsch CapEx investment?
Dylan, Jacques here. It's, I think the short answer is no. It's obviously based on our internal assumptions on diamond prices and seeing that we do not give guidance on those, we would not be able to really go into details here. We are confident that we have used appropriately conservative estimates going forward of the current base of prices, but we can't really go into a lot more detail on that line.
I think, Jacques, can you comment on currency rand dollar we-
Yeah, these projects were calculated on a basis of ZAR 15 to the dollar, depreciating effectively by an inflation differential. Yeah, again, we feel appropriately, not to say conservative, but appropriate for the estimate.
I think just to add to what Jacques said, you know, the market in terms of prices has increased quite dramatically in the last six months. We haven't kind of built a rising diamond price into those models that would reflect the sort of rate of increase we've seen. We have been conservative off a base of pricing in terms of the projects.
Yeah.
There's another one. I like this one. Are you talking to Moody's about this ridiculous Caa2 rating on positive watch for one year? When can you refinance the expensive bond? And do you expect any sanctions? Oh, the second question actually. I'll leave that one there.
Firstly, yes, we have engaged or started to engage with both S&P and Moody's, who have both issued ratings on both the company as well as our bond. We do expect S&P and Moody's to issue their re-reviewed ratings decisions in a fairly short space of time. Moody's probably sometime in March. S&P could actually be sooner. Yes, discussions is on the go. We can't control the timing, however.
Yeah, unfortunately, rating agencies are quick to downgrade and slower to upgrade.
Yeah. In terms of timing of the bond refi, we haven't even discussed. It's on the radar, as we mentioned, a possible look at opportunities around the second lien. As a board, we have not made a decision that we will proceed with a refi on the bond.
He also asks, do you expect any sanctions on ALROSA which could disrupt supply? Very topical.
Look, this is a question more for our political leaders. I think my only comment would be, you know, there's no outcome that could be worse for us as Petra. If there are any sanctions contemplated, obviously, that would be beneficial. There's, you know, no reason for us to speculate on that at this stage. You know, whatever the outcome, it, yeah, I guess could only be better for us, not worse.
A question for you, Richard. Could you please elaborate on your comment on how Petra has de-risked its exposure to the Williamson mine? Specifically, how would you describe your current relationship with the Tanzanian government? You've talked about the huge resource at Williamson mine, but what kind of financial support would you expect to get from the Tanzanian government, which is now a substantial shareholder, should you ever decide to expand the mine?
Yeah. The comment on de-risking our investment in Tanzania really goes to reduced exposure in terms of shareholding. You know, that was deliberate. You know, we haven't delivered much return from the Tanzanian investment to date. Through the framework agreement being implemented and the MoU with Caspian, we believe that we will start to see some return generated besides some contribution in terms of the acquisition price.
The comment on de-risking was specifically around our exposure and risk against the backdrop of you know no returns over the last 10 years. Having said that, we balance that with a view that you know the ore body has a large resource or it it's on a large resource, and we felt that there was an opportunity to potentially benefit from that upside of a lower risk base. In terms of government stake, important to note that government does have a free carry stake of 15–
16
16%, which means that is non-dilutable. Government is not required to contribute anything on an equity call as it relates to the 16%. The balance of their shareholding, however, is like any of our shareholding or Caspian's. Therefore, if government doesn't follow a call on equity funding, then it would dilute that portion of its shareholding. We're unlikely to see government participate in funding, but certainly, you know, we would expect that Caspian and ourselves, if we went that route, would, you know, provide funding. We're some way off looking at, you know, growing any business in Tanzania at Williamson.
The most important next step is to get back up to full production, to get the mine optimized, generate some cash and returns for shareholders being ourselves, and then in turn, our shareholders, and then we can think about growth opportunities.
I can just maybe add that funding for Williamson, we would also be looking at obtaining local financing through...
Correct
...through Tanzanian banks and other financial institutions. None of the assets at Williamson is encumbered in any way, and it is available for security package as well. That could be utilized as a last resort, shareholder contributions.
In our guidance, you would have noted that we've only got stay in business capital against Williamson, no expansionary capital in the guidance period, and that is all internally funded by Williamson.
There's another one. Sorry, it's just disappeared. Can you give a sense of when the infrastructure projects and things like the Centre Cut may come on board? This is from Pete, actually. Pete Malin- Jones.
I'll talk to the Centre Cut and Jacques can perhaps, or Juan can talk to the infrastructure projects. You know, the exact timing around the Centre Cut will depend on us moving that through a pre-feasibility stage in terms of looking at that opportunity. What I mentioned is we are considering putting a tunnel into the Centre Cut onto the east of Tunnel 41. So we do have infrastructure there and access to that. The reason we would contemplate that is we would be putting those new tunnels into blue ground, in other words, into kimberlite. You would effectively cover the cost of that through the revenue you would generate in establishing those tunnels. So it's not a–
It's a very sensible thing for us to contemplate. The exact timing of when we would come back to say we have a viable Centre Cut project will depend on you know the project as it moves through those different stages of study. Yeah. On infrastructure, you know, Jacques, Juan.
Yeah. Currently, the timing of infrastructure is on those projects. The cash flow impact is scheduled from H2 2023, so next fiscal year, the second half thereof, to start spending. I can also say that there's some provision for studies in this year. Again, similar to the C-Cut Centre project, the exact timing will be dictated by the outcome of the studies. We have provided for in the CapEx guidance from FY 2023 and specifically H2 onwards.
We'll provide updates as the, you know, the studies evolve.
I believe there's a call from Richard Hatch on the phone.
A question on the conference call.
Sorry, a question, yes. Not a call. Not a sort of chat.
Yeah. Hi, guys. Can you hear me okay?
Hi, Richard. Can you hear us?
Yes. Hi, Richard.
Hi. Hi, team. Thanks very much for the call, and I'm sorry not to be able to be there in person. Just got a question on the costs guidance for Cullinan and for Finsch. Some of your peers in South Africa have talked about pretty steep cost inflation, sort of real cost inflation that's biting at the moment, AngloGold Ashanti yesterday, Kumba Iron Ore today. This 2023 to 2024 cost increase, I think is about 1% at Cullinan. Is that fair given that tonnes mined increases by 5%, and tailings tonnes increase? The same goes for Finsch. Are your assumptions fair there, just given the fact that, you know, you appreciate tailings comes off, but really it doesn't seem to imply any real cost inflation. Are you being...
Are you comfortable with those numbers?
Richard, hi. It's Jacques here. Yes, we are comfortable. It does include all the real increases that we've provided for, specifically in labor and electricity. It further recognizes the business continuous business improvement projects that we've identified and will continue to roll out. It does incorporate an element thereof as well, offsetting some of the real increases we're likely to see. We've really only included items that we have a high level of confidence that will be delivered, with even further opportunities on the fringes which we have not fully incorporated into our models. I can confirm we are comfortable with the real guidance, yeah.
Okay. What kind of Eskom and general above SA inflation do you sort of apply to the estimates?
Well, on the Eskom side, we've covered earlier, but it's for the next 2-3 years, slightly above 10% within the low double digits, I would say. On the labor side also as stated, on the lower bands 2%-3% above CPI and then the higher bands, slightly lower, closer to CPI.
Okay. Much appreciated. Sorry to miss that. Right. Thanks very much. Cheers.
There's a question on the Williamson parcel. Any sense of when the outstanding sum relating to the parcel in Williamson will be received? I believe it's to the tune of $17 million. That comes from Ashley Belem.
Yeah. Again, Jacques here. The timing we are quite confident we'll have it wrapped up in this part of the fiscal year, i.e., the period up to June. Parcel value, the original valuation back in 2017 was just under $15 million, 15. The market has obviously moved both negatively and more recently positively against that mark. We have not had the opportunity to value the parcel ourselves. I can't at this point really confirm an exact value or an estimated value even, other than to say we think it's around the $15 million mark given the original valuation.
Importantly, in the framework agreement, Government of Tanzania has agreed that the proceeds from the sale of that parcel would be contributed to Williamson. Those proceeds would go to Williamson. You know, that as I say is captured in the framework agreement. Hence our increased confidence that we will, you know, finally see those funds flow to Williamson.
Yeah.
He is also asking a question about when do we expect some proceeds from Petra's 50% interest in the 38– 342.9 carat white diamond, as well as the 18.30 carat Type II-B diamond, the blue.
Those stones were acquired by Stargems. They've been through a process of cutting and polishing. We've seen some progress on those stones. We would imagine that you know, probably in the coming months, we should get a sense. It depends really on the market. Our understanding is that the larger white has been cut into two 50-carat white stones. And the blue is also being you know, cut and polished. We don't have clear indication around timing, but obviously, you know, when they do go to market, we would share that information with you. Do you wanna add?
I think the only thing that we can add is that, because of the uncertainty, our own numbers, not that we're disclosing cash flow numbers going forward, but it does not include any proceeds of these sales. We'll confirm at the time we need to realize this.
And also just to clarify that the partnership arrangement is only to participate in any upside. If there are circumstances where the polished product doesn't deliver, there's no downside for us. We participate on a partnering basis on the upside. In the current market, we would hope that we would see some upside.
Yeah.
I think the only other question which we haven't sort of covered in a different answer is, I'd like to ask if you've discovered large stones lately. Actually, that's, I'd like to ask that too.
Look, you know, I think that in 2019 we kind of announced a number of larger stones from Cullinan, you know, stones that were anywhere from 50-200 carats. The reason we did that was simply to try and instill some confidence in the market that the plant was working, because there were a lot of questions around why we weren't recovering larger stones. The thesis at the time was that the technology used in the plant, the XRL, wasn't working. What we said at the time was that it was really more as a result of the mining and the C-Cut, the block cave not being fully established yet, and the larger stones would come. Indeed, that's what happened.
We incrementally stopped reporting on the 50-plus, 100- and 150-carat stones just because that is the nature of Cullinan. Cullinan produces larger stones. You know, we have indicated that you know, we would, and we have reported exceptional stones where we believe that those would have significant value. There we're talking sort of circa $20 million stones. The fact that we haven't announced anything shouldn't be read or understood that Cullinan has stopped producing larger stones. It continues to produce larger stones. We hope to be able to tell you about another exceptional you know, in the near future. That's the nature of Cullinan.
You know, it will continue to produce large stones and exceptional stones. We're just not in a position to tell you when or how big or how much.
I think all the other questions are really about dividend distribution and redemption of the debt. We've covered that very thoroughly, I think.
Look, I mean, it is very encouraging to be able to start to have questions about dividends because that has understandably been absent from the conversation previously. Thank you. Jill, no more-
There's nothing else.
-questions?
Nope. Let me do this one last check. Nope.
Right. Anything on the conference call? No last questions from London. Thank you very much. It's been a long morning. We appreciate your time. Hope it's been helpful, and we look forward to chatting again soon. Thank you very much.