Morning and good afternoon, everybody, and thank you for joining us today to discuss our Q1 Financial Year 2022 Trading Update. We will take you through our production and sales for the Q1 end of 30 September 2021. I'm Richard Duffy, CEO, and joining me on the call today is our finance director, Jacques Breytenbach, who will cover the key points on our balance sheet. After taking you through our announcement, we'll open up for Q&A. You will automatically be placed on mute unless you wish to ask a question, in which case, please click the Raise Hand icon, and we will unmute you. The alternative is to use the message facility to type your question, and we'll then read it out and answer it after we've been through the announcement.
Please also note that we will be recording this webcast and, or we have recorded the webcast and it's available on our website. Some of you may have seen that. Then finally, just before we commence, pointing out that all figures, unless expressly stated otherwise, exclude Williamson mine, which remains classified as an asset held for sale. Starting with our operations, and first, our most important metric being safety. It was pleasing to see the improvement in lost time injuries during the quarter with our lost time injury frequency rate down 52% from 0.65 to 0.31, and the total number of injuries, including lost time injuries, down 38% to 8. As we have disclosed before, the majority of LTIs experienced recently have been of low severity and behavioral in nature.
This seems to be mirroring a wider trend in South Africa, where safety performance has deteriorated during the COVID-19 pandemic, which is attributed to the consequent disruption to people's lives and working environments. Our focus has therefore been on behavior-based intervention programs, and it is encouraging to see the improvement in this area. In terms of production, we saw an 8% uplift from the preceding quarter to just under 862,000 carats further to the steps taken to address the impact of waste ingress at the Finsch mine. Year-on-year production was down 12%, largely attributable to Finsch's high levels of production before the impact of the waste ingress and the resultant plant decrease in throughput and grade to mitigate its impact from Q2 of our last financial year.
Production at the Cullinan mine has continued to be strong, but we have reported that the most eastern tunnel in the C-cut block cave, known as Tunnel 41, experienced sudden and a rapid onset of convergence, which required immediate intervention. This resulted in the installation of additional support to protect the tunnel for the longer term and the closure of the southern access to Tunnel 41. This, together with the previously reported closure of the northern access to the tunnel, has resulted in 18 drawpoints established in this tunnel out of a total of 187 across the C-cut not being accessible for the remainder of this financial year 2022. We're currently investigating the root cause of this convergence, as well as evaluating appropriate mitigating actions.
Early indications are that without any mitigation, the convergence could result in a reduction of around 75,000-100,000 carats in the mine's production for financial year 2022, which is now expected to be at the lower end of the company's earlier guidance of 1.7 million-1.9 million carats, assuming no mitigating steps are factored in. Group production guidance for financial year 2022 remains unchanged at 3.3 million-3.6 million carats, including Williamson, with the South African operations estimated to contribute 3.1 million-3.4 million carats.
The reengineering projects at Finsch and Koffiefontein that were initiated in July 2021 to comprehensively review and improve the mine's cost basis and enhance operating margins remain in progress and we'll be in a position to provide more information on these projects at the time of our interim results in February 2022. The production ramp up at Williamson commenced during Q1 with 360,000 run-of-mine tons processed, yielding 14,400 carats. Turning to the diamond market and sales. In terms of sales, we experienced a very strong quarter, noting that we only hosted one sales tender in the Q1 as we normally do, as opposed to two in the other quarters.
Q1 revenue increased 48% to just under $115 million, driven by the sale of exceptional stones, contributing $50.2 million, being the sale of the 39.3-carat Type IIb blue diamond for just over $40 million, and the 342.9-carat Type IIa white diamond, which sold for $10 million. As a reminder, we classify exceptional stones as those diamonds that sell for more than $5 million each. Revenue for the quarter from our first tender was supported by diamond prices that increased by some 3% on a like-for-like basis compared to those achieved in Q4 of our last financial year. We, like other commentators, continue to see a supportive market due to the recent significant structural tightening of supply.
In 2020, the market experienced one of the most severe contractions in supply on record, falling 22% in carat terms to 107 million carats from 138 million carats the year before. This is due to a combination of temporary shutdowns due to COVID-19, diminishing resources, and the closure of the Argyle mine in Australia. Limited exploration and new projects suggest the continuation of the step down in supply, at least in the medium term. The contraction in supply has come about as the retail market for diamonds has rebounded well, with economies starting to open up and normalize after the lifting of some of the restrictions associated with the pandemic, with demand notably strong in the U.S. and China. This has served to significantly clear out excess inventories in the midstream and provides a much better balance between supply and demand.
The Natural Diamond Council continues to play its part and has recently launched its new advertising campaign aimed at stimulating demand in the run-up to the important festive buying season. Turning to Project 2022, where we are now in the final stretch of the project as our three-year business improvement program. The primary objective of Project 2022 was to deliver significant free cash flow, predominantly through improving our throughput of operations, as well as embedding a culture of operational and capital efficiency across the group. As detailed in our recent preliminary results announcement, annualized operating cashflow benefits of around $70 million are expected to be delivered through these Project 2022 initiatives, and are expected to result in the group meeting its $100 million-$150 million net free cash flow target by the end of June 2022.
I will now hand over to Jacques to cover the financial highlights before providing a brief update on the Williamson mine.
Thank you, Richard, and good day, everyone. As noted in the announcement, consolidated net debt reduced further to $207.6 million at the end of Q1, compared to $228 million at the end of 30 June 2021. The company currently has unrestricted cash of $203.6 million, and diamond inventories valued at $76 million. Inventories increased from $45 million at the end of June, in line with the expectations, and given the timing of our first tender for fiscal year 2022. With regards to CapEx, we have reiterated our guidance for the full year of $70 million-$82 million, excluding Williamson, with the majority of the CapEx being assigned to Cullinan and Finsch. Our capital spend is expected to be weighted towards our second half of fiscal year 2022.
We have also announced that we have commenced discussions with our South African lender group around the possible refinancing of the company's first lien debt, and we hope to conclude these discussions by the end of the calendar year. I will now pass back to Richard to give the update on Williamson.
Thanks, Jacques. I just briefly wanted to run through an update on the Williamson mine and the steps we are taking there to address the allegations of human rights abuses, as well as the continued issue of illegal mining incursions onto the mine lease area. As previously announced, Petra and Williamson Diamonds Limited, the operator of the mine, have taken extensive action to address this area since the allegations came to light, and detail on these is included in a dedicated page on our website. You will see the link at the bottom of this section in the announcement. One of the measures taken was the establishment of a Tier 1 operational grievance mechanism for complaints and grievances related to operational impacts.
Having established this OGM, the company has continued in this Q1 with the process of designing and implementing a non-judicial Tier 2 independent grievance mechanism, or IGM, which will consider any incidents of potential human rights violations and provide remedy as necessary. Putting the IGM in place requires multi-stakeholder engagement and approval, including from the government. We are therefore targeting the launch of the pilot phase of the IGM by the end of financial year 2022, with the IGM becoming fully operational by the end of Q1 financial year 2023. Community members already have the ability to lodge grievances intended to be handled via the IGM, and a number of such grievances have been lodged to date, which will be evaluated in due course once the IGM becomes operational.
We have also made progress with the various community projects around sustainable development, and an update on these is also available on our website. On illegal mining, during this Q1 of FY 2022, there were a total of 143 reported incidents of illegal incursions onto the Williamson mine lease area, resulting in six security officials and two police officials suffering minor injuries and 15 arrests being made. We believe the contracted security teams and Tanzanian police acted in accordance with the Voluntary Principles on Security and Human Rights. WDL is continuing its extensive engagement with communities around the mine to highlight the dangers of illegal mining, seeking to reduce illegal incursions onto the Williamson mine lease area.
As previously mentioned, Williamson is classified as an asset held for sale while we review strategic options for the mine, but this does not impact our commitment to the actions and projects implemented in response to the human rights abuse allegations. That concludes the overview of our trading update, and we would now like to open for questions. As a reminder, please raise the hand icon if you would like to ask a question or type your question in the chat facility as preferred. We'll pause for questions. Thank you.
Richard, I see we have a hand up from Alex. Alex, we've unmuted your mic, or you should be able to unmute your mic on your side.
Yes. Hello. Thank you very much for the update, Richard and Jacques. Two questions from my side. First on Cullinan. If you have any estimation kind of what cost effect should we expect, say, for production costs for this year and for, like, CapEx, for next year to potentially bring those carats online, back online? That's my first one. Second, Jacques, you touched upon refinancing these South African debt facilities. Just if you could clarify what are you particularly looking to do. Are you looking to extend those, or are you looking to potentially utilize your cash and repay them and potentially agree kind of new facilities maybe with, I don't know, a lower volume or something? Thank you very much.
Thanks, Alex. I'll start with the Cullinan question. This happened sort of middle September, not that long ago. What we have established is that you know, although we haven't finalized the root cause analysis, it really was the result of ground conditions in that area of the mine, in that tunnel 41, which is on the, it's the most eastern tunnel. There are a number of geological you know, intersecting faults and joints. There's also a portion of the tunnel in the weaker gray kimberlite rock.
Part of the reason for this convergence, which essentially is where some part of the tunnel started to close, and also there was a very large wedge rock sitting above one of the draw points, draw point 81, and we needed to bring that down, which we did safely. That created a void above that, particularly between draw points 81 and 82. What we've done is we've started to rehabilitate the impacted or affected draw points and the tunnel, and we're doing a number of things. We're putting these steel sets in to hold up the tunnel where it's starting to, you know, where we've seen convergence. We've also pumped concrete into the voids and plugged two of the draw points to allow that ground to stabilize.
The actions we have taken and will continue to take, we believe will allow that area to stabilize. It does mean that we won't have access to tunnel 41, and as I said, that impacts 18 drawpoints out of a total of 187. That's less than 8% of the available drawpoints. We indicated that the impact for this year is around 5%, so not 8%. The reason 5% is because it happened right at the end of the Q1, and Cullinan was also ahead of plan, which means we will see less impact. The last point there is to note that we have not assumed any mitigation offset of the shortfall at this stage.
We're still looking at those opportunities to, for example, put some additional tailings materials through, which could reduce the deficit, but we're not yet in a position to talk to that. From a timing point of view, as I said, still early days, but we are seeing the improvement in terms of the ground conditions there. We have said that we would not expect to get back into the tunnel in this financial year, but obviously we will continue to monitor that. As soon as we have better information around timing post the end of this financial year, we'll obviously share it with the market. Hopefully that answers that question. I'll let Jacques talk to your question on the first lien debt.
Yes. Thanks, Alex. What we're contemplating is to effectively use our cash that we do have available at the moment to settle the drawn debt under the first lien facilities, thereby optimizing on our interest expenses, and to replace it with more appropriate facilities going forward, slightly reduced from the overall facilities that we currently have in place, but with an appropriate level of facilities going forward with effectively three things in mind. Firstly is extended tenure. The current facilities amortizes in full over the effectively next 2.5 years, since it was put in place in March of this year.
Secondly, to reduce the interest and commitment fees to have more favorable terms on that front. Thirdly, to have more appropriate governance associated with these facilities as well. Our existing facilities have a largely DSCR covenant, debt service cover ratio, which we feel is not necessarily appropriate for facilities of this nature following the restructuring being completed. That's the intent. As we mentioned, we're hoping to finalize these discussions in the current quarter, and we'll revert back to the market with an update once appropriate.
Thank you. In terms of kind of seniority compared to bonds, this will remain first lien debt, right?
Yes. These will remain first lien, with the bonds still ranking behind these facilities.
Understood. Thank you.
Thanks, Alex.
Any other questions from participants? We have another question. Richard, clearly hasn't asked all his questions this morning. Richard, good afternoon. Your camera should be on [crosstalk] t here you go. Thank you.
Thanks. Sorry about this. Just a point of clarification as I follow my model. Just the one for 50 share consolidation comes live on the 29th of November, right?
Richard, we have the AGM on the 19 November, and it will come live shortly thereafter. I'm not gonna lie to you. I can't give you the exact date, but it should be shortly after the 19th.
Okay.
We can come back to you if we have. I can't remember if there's an exact date, but there will be a timetable. We'll just confirm that with you.
I think it's in the AGM release, but I just wanna
Yeah.
I think that is. Yep.
Yeah. 29th. Yeah. It's all good. All right. Thanks, guys.
Thank you. Any other questions? Let's just check the chat. Anything from there? Yeah, there's one more. Two more. Akbar, good afternoon. You should be able to unmute on your side.
Hi. Hi, hope you're all doing well. Just a follow-up on the last question, well, the second to last question on the first lien debt. Are you trying to refinance a portion of it because you feel like the cash generation you'll have net of CapEx may not be sufficient? I'm trying to understand your capital allocation decision here. Why not just use the cash you're generating in this environment just to pay down that bank loan all the way down to zero?
That's yeah, that's exactly what we intend doing, Akbar, is to pay all the drawn debt down to zero and have facilities available thereafter. Probably largely undrawn, but facilities available.
I mean, we have a lumpy cash flow given the sale tenders. We do need working capital facilities to just smooth out our working capital management intra-sales. The intention is to have a more appropriate working capital facility that we can access as and when required. It won't be the same as the current first lien. We will pay it down.
[crosstalk] Okay, I see.
You're with us. Yeah. It's a working cap facility that will be drawn as required, but yeah, and then repaid. Required [crosstalk]
The capital structure would look like you'll have a revolving facility that may or may not be drawn. It might be drawn to smoothen out some of the cash flows.
Correct.
to the seasonality, and then you'll have the bonds.
Correct.
Absolutely correct.
That makes a lot of sense.
Thank you.
All right. Any other questions? It looks like we don't have any more questions from the group. Let's check once more on the chat. No. All right. Well, thank you very much, everybody. If there are any questions you have post the call, please reach out to our investor relations team, and we will get back to you. Otherwise, thank you very much for your time, and we look forward to talking to you again early in the new year.
Thank you all. We appreciate your time. Bye-bye.
Thanks very much.