Good afternoon, and welcome to the Petra Diamonds Limited Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged, and they can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Just simply type in your questions and press Send. Before we begin, I would like to submit the following poll, and I would now like to hand you over to Joint CEO, Vivek Gadodia. Good afternoon to you, sir.
Good afternoon, moderator, and thank you. Thank you everyone for joining us today as we discuss the half-year results for the period ending December 31st 2025. I'm joined by my counterpart, Juan Kemp, who is the Joint CEO responsible for operations, and together with himself, we will provide an update on the corporate and operational matters of the business. We're also joined by Johan Snyman, our CFO, who will cover the key financial metrics as they transpired during the first half of the year. After taking you through a brief presentation, we will open up for Q&A. Please note that we will be recording this webcast that will be available on our website later today. Moderator, if you can please move to slide five. Thank you, moderator.
I think to start off with, if we can just do a quick reflection on the last six months. Following really significant changes that we effected in the business in FY 2024 and FY 2025, we really started FY 2026 as a much leaner business, post the disposal of Williamson and Koffiefontein, and now we have two capital-optimized assets that have a world-class resource base, as we also launched the refinancing for the group's debt that were due to mature in early 2026. We believe that our capital-approved, our approved capital programs, rather, are set up to unlock operational leverage for the business on the back of both improved product mix as well as higher grades that will result in an increased carat production going forward. This, we believe, positions the business well and maintain resilience even in a continued suppressed diamond market.
If we quickly glance on the highlights during the period, obviously the main one being in November, we announced the successful completion of the group's refinancing, which provided the company with extensions to both its first lien and second lien debt facilities, as well as a successful $25 million rights issue, which was necessary for the continued development of our capital projects. In addition, we introduced an innovative PICE mechanism or payment in cash or equity, which allows us future flexibility to manage liquidity in the event that the business requires to protect liquidity, where we would settle secondly in bond coupons and shares instead of cash. Alongside this, it is pleasing to report that we are seeing steady operational delivery with both mines now settled into their new shift configurations.
Our capital projects, which are the genesis of the medium-term value creation that we shared with the market last year, are largely on track. We have started mining in fresh ore, especially at the Cullinan mine that has resulted in an improved product mix as we anticipated. This is particularly exemplified by the recovery of the 41.82 carat blue Type II diamond, which is of exceptional color and clarity. We maintained our focus on containing costs and CapEx and have performed well against our internal plans in rand terms, with the USD numbers impacted due to the stronger rand. I think overall, if I had to sum up the past six months, we believe we've controlled the controllables well. We have continued to see a weaker market.
We have obviously seen a stronger rand, but our product mix has definitely improved as anticipated. If I just reflect briefly on the, on the results and financial highlights, which both Juan and Johan will unpack in greater detail through their sections. As I just said, steady operational performance has continued into FY 2026, with the teams now settled into new shift patterns at both operations and delivering on higher tons and carats despite adverse weather-related disruptions that have been experienced at both the mines over the rainy season in South Africa. Juan will unpack the operational performance in a little bit more detail later on. We are pleased with the increase in carats recovered as grade continued to increase on the back of opening new mining areas.
With continued pressure on the diamond market and despite a dip in like-for-like pricing of 20% between Q1 and Q2, our half-year average realized price has held up well and recovered sharply compared to the previous half, again, on the back of the improved product mix, especially at Cullinan. This is in line with our expectations as we open up new parts of the ore body. Revenue was down to $100 million in comparison to $115 million in the corresponding period last year. That is really down to the timings of the tenders that we carried out between December and Jan. This is also reflected in the higher inventory build-up, which Johan will unpack.
As I've mentioned, we managed our costs, both OpEx and CapEx, well in rands in line with our focus on cost discipline, and we will continue to focus on further cost optimization opportunities going forward. We closed the half year with an operational free cash outflow of $6 million. Again, a significant improvement on the -$43 million in the previous half and the -$6 million for this period was largely due to the build-up of the diamond inventory during the period and the timing of the tenders. Moderator, if you move to the next slide, please. Taking stock of Petra's tender results specifically and some market-related commentary during the first half. What we are seeing in the diamond market is ongoing weakness, with particular pressure on the smaller size segments of the market.
Smaller size stones where we believe lab-grown diamonds have now manifested as a separate proposition in this part of the market. It is, however, pleasing to see the robustness of our average price. If you compare our average prices in the blue bars against the rough diamond index just directly above it, while the index has continued to decline from its peak of FY 2022, our realized average prices have seemingly plateaued, which is largely because of the product mix that we produce specifically from the Cullinan mine, given that it produces regularly coarse material and high-value gemstones, including Type II white and blue diamonds.
As I mentioned, diamond sales for H1 or revenue for H1 was $100 million from the sale of approximately 964,000 carats, compared to $115 million that resulted from the sale of 1.100,000 carats in the same period last year. We were obviously very excited to recover the exceptional blue in December, which is currently being marketed, and we expect the proceeds from this stone to be realized during the second half of this financial year. Finally, we also appointed Bonas Group to provide diamond sales and marketing services to Petra. This will provide the company with flexibility to market our diamonds not only in Johannesburg and Antwerp but also in Dubai, which has emerged as a major diamond trading hub in recent years.
If you move to the next slide, please, moderator. I think looking outside in at the broader picture, whilst it is very difficult to predict when the market will recover sustainably, we do note some potential tailwinds that could help the market. These include, continued Indian demand from the ever-growing emerging middle class. India continues to shine. From a Chinese demand perspective, which has been muted really on the back of coming out of COVID, we are seeing, according to some studies, some signs of recovery which could be a positive thing. More recently, the implementation of the Luanda Accord, which is aimed at increasing marketing spend for natural diamonds through the Natural Diamond Council, should help reinvigorate marketing for natural diamonds alongside major players who have also stepped up marketing for natural diamonds.
Finally, the one big factor that has been playing on the market is the uncertainty around U.S. tariffs. Now, in early February, India and the U.S. did announce a trade deal framework which created the path to potentially 0% duty on Indian diamonds. While the Supreme Court has ruled against the previous frameworks and that uncertainty still exists, I think there is some potential positive given that there is a path for duty on Indian diamonds to the U.S. reducing. Just as a reminder, for the best part of last year, Indian diamonds were taxed at 25% and then 50% from about July onwards, which even in the current regime should be 10% or 15%, once a trade deal is implemented that should hopefully get down to 0%, that hopefully will reinvigorate some of the market.
There have been some studies that suggested last year that the U.S. probably imported more lab-grown diamonds than natural diamonds 'cause the 50% duty of a much lower base was much easier to absorb, and that might have also impacted the market in the second half of last year. Despite these tailwinds, we do see a likelihood that the smaller-sized diamonds could remain suppressed as lab-grown diamonds have created a separate purchase proposition in this category. On the flip side, what we are seeing is demand for coarser material and high-value diamonds has seemingly turned a corner which positions us well, like I said, given our product mix and especially Cullinan producing some really nice high-value stones on a regular basis. I'll now pass over to Juan to talk about our operations. Moderator, if you can move to slide 10.
Thank you, Vivek. Good afternoon, everyone, and thank you for joining us. I will start with safety. The safety of our people remains our highest priority. At Petra, we are committed to ensuring that every employee returns home unharmed at the end of each day. Our strong safety performance of more than eight years fatality-free and a lost time injury frequency rate consistently below 0.3 since 2014, including the first half of FY 2026, demonstrates the effectiveness of this commitment and a reflection of the teams settling into the new roles and shift patterns at each operation following last year's internal restructuring.
Recognition of the team safety achievement was granted in November, where Cullinan Mine won several awards, including Best Safety Performance in Class at the MiNE SAFE 2025 Awards, and Finsch achieved second position for safety in the underground mines category at the Northern Cape Mine Managers Association Awards. Our own achievements, together with the external recognition we have received, reinforce our determination to continue striding towards our zero harm goal. Moderator, if you can please move to slide 11. In terms of production, as mentioned by Vivek, we are proud of the steady operating performance demonstrated at both mines during the period. At Cullinan, carats recovered in the first half of FY 2026 were lower year-on-year, largely due to the transition from a continuous operation model to a three-shift structure.
While ROM tonnes treated declined in line with the updated life of mine plan, this was partially offset by an improvement in the recovered grade, driven by the increasing contribution of fresh ore from the CC1- East block, a trend we expect to continue. Tailings treatment performed in line with guidance. As mining activity shifts further towards the eastern side of the C-Cut, which includes the eastern draw point in tunnel 41, the product mix continued to improve, as evidenced by the recovery of several high-value stones, including the Type II whites and the 41.82 carat blue diamond, as mentioned by Vivek. Our expansion projects at Cullinan mine have continued on track and in line with our CapEx guidance as we continue to focus on our cost efficiencies.
At Finsch, carat production is trending upward, with both tonnes treated and recovered grade higher than in the comparable period last year. The mine has now stabilized within the two shift structure and is extracting greater volumes of fresh ore from the 81 level and 86 level, which is contributing to the ongoing improvement in recovered grade. With the ramping up of the production in the level five project areas, we expect the product mix to improve as we anticipate a coarser mix of diamonds recovered due to the mining of the ore from these new areas, while also benefiting from a higher grade, leading to a higher carat production. In terms of expansion projects, Finsch did experience a shortfall in development meters to the 3-level SLC project that has resulted in a delayed handover of some of the production tunnels, largely due to unforeseen ground conditions.
This has been mitigated somewhat by enhanced carat contribution from 78 level and 81 level, with plans underway to catch up the development meters shortfall to date. Capital expenditure at both Cullinan and Finsch is higher compared to the previous period, in line with the requirements of our life of mine plans. At the same time, our deliberate and disciplined focus on reducing operating expenditure across the group is reflected in lower adjusted mining and processing cost. I will now hand over to Johann, who will run through some of the key financial metrics. Moderator, can I ask that you please move to slide 13.
Thank you, Juan. Good afternoon, everybody. I will cover four areas. First, the drivers of our first half earnings. Second, cash flow. Third, the balance sheet and liquidity. Finally, the main sensitivities we are managing in the second half. As mentioned by Vivek, revenue for the six months ended December 31 2025, was $100 million versus $115 million H1 FY 2025. The main driver was tender timing, with the December 2025 tender largely moving into January 2026. That is visible in closing diamond inventories, which were 608,000 carats, valued at approximately $46 million at cost as at December 31 2025, compared with 385,000 carats and approximately $40 million at cost price as at the previous half year.
For the income statement, the key point to separate is adjusted EBITDA versus IFRS statutory earnings. The statutory net loss after tax was $90 million, primarily driven by impairment charges recognized in the period. Due to the combination of a strong rand and weaker dollar, we revised our impairment models for Cullinan Mine and Finsch. This resulted in impairment losses for Cullinan Mine of $106,000, and for Finsch, $51 million. Operational cash flow was an outflow of $6 million compared with an inflow of $16 million in H1 FY 2025. The main drivers were, first, the buildup in diamond inventory due to tender timing, and second, a non-recurring release of diamond debtors in the prior period, which did not repeat this year.
Capital expenditure was $34 million versus $30 million, and we continue to expect FY 2026 capital expenditure to be weighted to the second half. A simple way to think about the second half cash is that we are focused on converting the on-hand inventory into cash through tender sales and maintaining strict discipline on operating cost and capital sequencing within the parameters of the refinancing and our covenant framework. Moderator, please move to the next slide. Adjusted mining and processing costs were $72 million, down from $98 million, and adjusted EBITDA increased to $26 million from $15 million.
The year-on-year cost reduction was driven by diamond inventory movements of $25 million and reductions in on-mine cash costs of $7 million, partly offset by the impact of the U.S. dollar on the cost base of around $3 million and inflation of about $5 million. On FX, the average exchange rate for the six months was ZAR 17.38 to the dollar, compared with ZAR 18.15 in the prior period, and the closing rate at December 31 2025 was ZAR 16.56 to the dollar. In the first half of the year, we were able to offset some of the foreign exchange impacts through our hedging program, delivering $6 million in realized foreign exchange profit. This is not expected to repeat in the second half. Moderator, if you can move to the next slide.
Consolidated net debt at December 31 2025 was $284 million, compared with $261 million at June 30 2025, and $215 million at December 31 2024. Two points matter for how we interpret that number. First, consolidated net debt includes fair value adjustments on the 2030 loan notes and other items. The reported note carrying value at period end includes a fair value adjustment recognized at the refinancing modification date and transaction costs capitalized to the senior secured debt. Second, from a liquidity standpoint, unrestricted cash was $36 million at period end, with additional restricted cash balances. On the revolving credit facility, $11 million remained available for drawdown as at December 31 2025.
As a reminder on covenants under the Absa facility, the package includes net debt on the senior debt only to adjusted EBITDA and senior interest cover on this tested semi-annually, plus a minimum 12-month forward-looking liquidity requirement of $20 million and a CapEx variance limit versus the base case and budgets. There were no covenant breaches as at the reporting date. The refinancing introduced a payment in cash or equity mechanism on the 2030 loan notes. Under this structure, interest can be settled in cash or in shares at the issuer's election, and the terms include defined share price mechanics for year one and subsequent years. From an accounting perspective, that price feature is treated as an embedded derivative that is bifurcated and measured at fair value through profit and loss.
At period end, the derivative financial asset related to interest settlement on the 2030 loan notes was recognized at $17 million, split between current and non-current. The point for today's call is that these are valuation movements and classification effects. They do not change our operational focus, which remains liquidity management and delivery on the mine plans. Moderator, if you can move on, please. Foreign exchange risk remains a first-order sensitivity for the group, given the rand cost base and the U.S. dollar revenues. As we set out in the presentation, a one rand movement in the exchange rate equates to approximately $8 million-$10 million on EBITDA and $12 million-$13 million on operational free cash flow on an unmitigated annual basis. We will continue to enforce cost control, prioritize cash generations, and sequence capital to protect liquidity.
Tender timing and the conversion of inventory into cash is also key, a key focus into the second half, given the elevated inventory position at December 31. To close, the first half showed improved adjusted earnings performance driven by cost actions and product mix while cash flow was impacted by tender timing and inventory build. We ended December with $36 million in unrestricted cash and $11 million in revolving credit facility availability and no covenant breaches at the reporting date. I will now hand back to Vivek to provide the company's concluding remarks. Moderator, you can please turn to slide 18.
Thank you, Johan, and thank you, moderator. I think as we conclude, we'd just like to reiterate that what we focus on F one is really the continued focus in the second half of the financial year, which is to continue to deliver on safe and reliable operations, continue to progress our expansion projects, both at the Cullinan mine and Finsch, which will continue to improve our product mix and grade and therefore help with earnings going forward. We expect to deliver on the production guidance that we shared with the market in August 2025. The diamond market does remain challenging and is out of our control, but we continue to make all the choices that we can to ensure we can navigate the current market conditions.
These include, for example, ongoing focus on cost efficiencies, business optimization, capital sequencing, and margin initiatives, improvement margin initiatives that will allow us to mitigate the stronger rand as well as the weaker market in the smalls. In closing, I'd like to thank all our stakeholders for their continued support of the business. With that, we conclude the presentation and now open for Q&A.
Thanks, Vivek. Our first question comes from Peter H. If we mark to market to today's like-for-like diamond prices and FX, what additional earnings headwind would we have to offset with self-help?
Thanks, Peter. I think that to start off with, we obviously don't guide on earnings, but I appreciate the question. In the context of our guidance, it's probably fairly easy to work out given that our guidance was based on ZAR 19. As Johan has said, an unmitigated ZAR 1 movement over the full year results in $8 million-$10 million of EBITDA impact. That is probably the best way I can say in terms of characterizing the impact of the rand if left unmitigated. Obviously, as what Johan has said, we do have hedges in place, and we did get the benefit of hedging in the first half. We may not get the same benefit in the second half, but we'll continue to look for hedging opportunities. The other mitigation that has been helping us is the much-improved product mix, where we're tracking ahead of our price assumptions, for example. That should help us mitigate or absorb some of the impact of the rand.
Thanks, Vivek. The next question is from George T. How should we think about covenant headroom through FY 2026 under downside pricing scenarios?
Thanks, George. I think you should, maybe worth reiterating again, our covenants are only for senior debt. In the covenant calculation, we exclude the entire $228 million-$229 million nominal second lien debt, as well as the interest associated with that. That's point number one. Point number two, we believe that the covenant package that we put in place as part of the refinancing does have sufficient headroom to absorb any sustained price down compared to our assumptions that we shared with the market.
Thanks, Vivek. The next question is from Andrew B. Can you provide guidance on whether the current ore processing and production levels at Cullinan reflect a sustainable post-reconfiguration steady state?
Thanks, Andrew. I'll start. Johan, maybe I'll ask you to chip in. I think as we noted in the first quarter operating update, as the transition happened, there were some transitional hiccups at Cullinan, moving from continuous operations to a three shift configuration. During Q2, those were largely ironed out. I do believe Cullinan is now operating at, as you say, a sustainable post-reconfiguration steady state, notwithstanding the initial hiccup. Juan, please add.
Thank you, Vivek, and thank you, Andrew, for the question. Indeed, challenges we had at changeover. Plant capacity, as we communicated, in the past as well, the new plant was constructed in 2017, and capacity of the plant is adequate for the future, so stability in the plant. As we continue towards the east in the C-Cut and we open up ore tunnels on the 3-level SLC, we also see that, mining, will be able to accommodate the requirements for tonnes hoisted and treated in H2. I see a sustainable post-reconfiguration steady state, Andrew. Thank you.
That's great, Vivek, Juan. Johan, thank you very much indeed for addressing those questions from investors today. Of course, should the investors have any further queries to contact Petra's investor relations team. Could I please ask investors now to close this session, as you will now be automatically redirected to provide your feedback which will help the company better understand your views and expectations. On behalf of the management team, we would like to thank you for attending today's presentation, and good afternoon to you all.
Thank you all.
Thank you. Bye bye.