Petra Diamonds Regulatory News (PDL)

Petra Diamonds Limited

("Petra", "the Company" or "the Group")

Interim results for the six months to 31 December 2014

Petra Diamonds Limited announces its interim results (unaudited) for the six months to 31 December 2014 ("the Period" or "H1 FY 2015" or "H1").

HIGHLIGHTS

Financial

· Revenue up 16% to US$214.8 million (H1 FY 2014: US$184.6 million).

· Adjusted EBITDA4 up 22% to US$84.9 million (H1 FY 2014: US$69.4 million).

· Adjusted net profit after tax5 up 37% to US$42.8 million (H1 FY 2014: US$31.3 million).

· Net profitafter tax up 38% to US$39.1 million (H1 FY 2014: US$28.4 million).

· Adjusted operating cashflow6 up 162% to US$50.4 million (H1 FY 2014: US$19.2 million).

· Adjusted EPS5 up 26% to 6.66 US$ cents (H1 FY 2014: 5.28 US$ cents).

· Basic EPS up 26% to 5.94 US$ cents (H1 FY 2014: 4.70 US$ cents).

· Completed re-financing of US$98 million Black Economic Empowerment ("BEE") loans.

· Net debt down 58% to US$45.8 million (H1 FY 2014: US$108.8 million).

Operations

· Production down 2% to 1,601,069 carats (H1 FY 2014: 1,634,576 carats).

· Costs remain well controlled; the weaker Rand had a positive effect on Petra's operating costs in US Dollar terms.

· Capex of US$125.2 million (H1 FY 2014: US$85.3 million) including capitalised borrowing costs, in accordance with the roll out of the Group's expansion programmes.

· Safety: Group LTIFR of 0.28 (H1 FY 2014: 0.28), demonstrating strong focus on this area.

Outlook

· Full year production guidance increased from ca. 3.2 Mcts to ca. 3.3 Mcts.

· Revenue weighted to H2 due to the seasonal timing of Petra tenders.

· Softer rough diamond market conditions experienced in H1, however the Company's first tender of H2 FY 2015 saw good levels of interest and slightly firmer market conditions.

· Progressive dividend policy adopted; maiden dividend of 2.0p per share to be paid for the full 2015 financial year.

Johan Dippenaar, CEO of Petra, commented:

"Petra has achieved strong first half results, further to the continued delivery of our growth strategy. Our expansion programmes are on track at all operations, and production is expected to grow to ca. 3.3 million carats for FY 2015 and to ca. 5 million carats by FY 2019.

"While the diamond market remains under pressure, there are encouraging signs that we are seeing a stabilisation in market conditions, as evidenced by good demand levels at our first tender in H2 FY 2015. Our continued growth trajectory and robust financial position places Petra in a good position to capitalise on the attractive medium- to long-term fundamentals for our industry."

Analyst presentation and webcast

A presentation for analysts will be held at 9:30am GMT on 19 February 2015 at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. A live webcast of the analyst presentation will be available on Petra's website at www.petradiamonds.com and on the following link: http://www.axisto-live.com/investis/clients/petra-diamonds/presentations/54b39cb2e577b0040b0a7913/interim-results-2015.

A recording of the webcast will be available from 1:00pm GMT on 19 February 2015 on the website and on the same link.

SUMMARY OF RESULTS (unaudited)

Notes:

The Group uses several non-GAAP measures above and throughout this report, including adjusted mining and processing costs, profit from mining activities, adjusted EBITDA, adjusted net profit after tax, adjusted earnings per share and adjusted operating cashflow. As these arenon-GAAP measures, they should not be considered as replacements for IFRS measures. The Company's definition of these non-GAAP measures may not be comparable to other similarly titled measures reported by other companies.

1. Petra's H1 FY 2014 interim results have been amended to reflect the results of the Sedibeng JV and Star operations within loss on discontinued operations as per the requirements of IFRS 5, and in line with the same treatment applied in the results for the year ended 30 June 2014; (refer to note 8).

2. Adjusted mining and processing costs are mining and processing costs stated before depreciation and share-based expense.

3. Profit from mining activities is revenue less adjusted mining and processing costs plus other direct income.

4. Adjusted EBITDA is stated before share-based expense, impairment charges, net unrealised foreign exchange gains and losses, and loss on discontinued operations.

5. Adjusted net profit after tax and adjusted (basic) earnings per share are stated before impairment charges, net unrealised foreign exchange gains and losses and loss on discontinued operations.

6. Adjusted operating cashflow is operating cashflow adjusted for the cash effect of the movement in diamond debtors between each financial year end, excluding unrealised foreign exchange translation movements.

For further information, please contact:

About Petra Diamonds Limited

Petra Diamonds is a leading independent diamond mining group and an increasingly important supplier of rough diamonds to the international market. The Company has interests in five producing mines: four in South Africa (Finsch, Cullinan, Koffiefontein and Kimberley Underground) and one in Tanzania (Williamson). It also maintains an exploration programme in Botswana.

Petra offers an exceptional growth profile, with a core objective to steadily increase annual production to 5 million carats by FY 2019. The Group has a major resource base in excess of 300 million carats.

Petra conducts all operations according to the highest ethical standards and will only operate in countries which are members of the Kimberley Process. Petra is quoted with a premium listing on the Main Market of the London Stock Exchange under the ticker 'PDL' and is a member of the FTSE 250.

For more information, visit the Company's website at www.petradiamonds.com 

CEO'S REVIEW

Petra has delivered a solid set of financial results for the Period, with revenue up 16% to US$214.8 million, profit from mining activity up 21% to US$92.9 million, adjusted EBITDA up 22% to US$84.9 million, net profit up 38% to US$39.1 million and adjusted operating cashflow up 162% to US$50.4 million.

Production for the Period decreased 2% to 1.6 million carats, with increased ROM production at Finsch, Koffiefontein, Kimberley Underground and Williamson, offset by reduced ROM production at Cullinan and lower tailings production at Finsch and Koffiefontein. Due to the strong contribution from Finsch, together with other production initiatives coming on line across the operations, Group production guidance was raised on 26 January 2015 by 100,000 carats to ca. 3.3 million carats for the full year.

As previously stated, FY 2015 is a transitionary period that marks the last financial year in which the Company is so reliant on production from the mature mining areas at Finsch and Cullinan. Given the production challenges of operating from these mature mining areas, it was a good achievement to meet overall production of 1.6 million carats for the Period. It is important to note that the Group's expansion programmes are set to start to deliver production from undiluted mining areas from the end of H2 FY 2015; this will build from FY 2016 onwards and is expected to substantially improve production grades which will lead to targeted production of ca. 5 million carats per annum by FY 2019. Our expansion projects remain on track.

Revenue for the period of US$214.8 million was boosted by the sale of two exceptional diamonds from the Cullinan mine: a 232 carat white diamond of excellent colour and clarity which sold for US$15.2 million and a 122 carat blue diamond which was sold into a beneficiation partnership agreement, with Petra receiving US$23.5 million for an 85% share in the stone, and retaining a 15% interest in the polished yield. The blue diamond is currently being cut and polished by our partner and is expected to produce several polished blue stones of significance. Petra will receive its 15% share in the proceeds, after beneficiation and related expenses, and we will update the market when appropriate.

The Group's LTIFR of 0.28 was consistent with that achieved in the comparative period, which remains a good accomplishment in terms of the underground mining industry. However we are always striving to achieve continuous improvement and this most important measure will continue to receive the greatest attention throughout all levels of our Group.

In light of the strong outlook for the Company and Petra's robust financial position, we have announced our intention to pay a maiden full year dividend of 2.0p, which is a major milestone in the development of our company.

DIAMOND MARKET

The rough diamond market exhibited its customary post summer softness during H1 FY 2015. Further pressure on prices was evident due to some short-term indigestion in the pipeline caused by issues relating to liquidity, polished inventory levels and the impact of the strong US Dollar on US Dollar denominated diamond prices. As announced in the Company's Trading Update on 26 January 2015, Petra estimates that diamond prices achieved by the Company on a like for like basis were down on average by 8 to 9% for the Period.

The Company's first tender of H2 FY 2015 has seen good levels of interest and slightly firmer market conditions. If this steady activity continues in the pipeline in the months to come, the Company expects firmer pricing towards the end of H2 FY 2015.

Due to the softness in the diamond market (and additional recovery of smaller diamonds at Finsch), actual prices achieved for certain mines for H1 FY 2015 were lower than Petra's original FY 2015 guidance and, as previously announced, the Company adjusted its diamond pricing guidance for H2 2015 and FY 2015 (set out in the table below).

Notes:

1. All sales (both ROM and tailings) including exceptional diamonds were used to calculate the above average values.

2. Excludes guidance for exceptional diamonds.

FINANCIAL RESULTS

Revenue

Revenue for H1 FY 2015 was up 16% to US$214.8 million (H1 FY 2014: US$184.6 million). Results for H1 include sales proceeds for two exceptional diamonds for combined revenue of US$38.7 million (H1 FY 2014: US$8.5 million).

Carats sold were down 1% to 1,401,575 carats (H1 FY 2014: 1,414,818). Carat sales were lower than carats produced due to the seasonal timing of Petra's tenders; as usual, Petra held three tenders in H1 (equating to five months' production) and will hold four tenders in H2 (equating to seven months' production).

Adjusted mining and processing costs

Adjusted mining and processing costs remain well controlled across the Group, rising 12% in US Dollar terms being mainly due to the increase in tonnes treated. For the South African operations, absolute costs increased in Rand terms by approximately 12%, due to higher tonnes treated as well as the expected inflationary cost escalations with regards to labour and electricity. This Rand increase was offset by a circa 9% weakening of the ZAR against the US Dollar during the Period resulting in adjusted mining and processing costs for the South African operations in US Dollar terms increasing by only 2% versus H1 FY 2014.

Higher diamond sales (inventory release) and increased production related costs at Williamson contributed to the overall 12% increase in costs across the Group mining operations.Detail of the breakdown of mining and processing costs for the Period can be found at the following link: http://www.petradiamonds.com/investors/analysts/analyst-guidance.

Profit from mining activities

Profit from mining activities was up 21% to US$92.9 million (H1 FY 2014: US$77.0 million), reflecting higher revenues, offset by the modest rise in costs in US$ terms as noted above, which resulted in an increased profit margin from mining activity of 43.2% (H1 FY 2014: 41.7%).

Exploration

Petra incurred US$2.4 million on exploration expenditure during the Period (H1 FY 2014: US$1.4 million).

Corporate overhead - General and Administration

Corporate overhead of US$5.6 million for the Period (H1 FY 2014: US$6.2 million) remained well controlled and in line with the broader cost control procedures in place across the Group.

Adjusted EBITDA

Adjusted EBITDA, being profit from mining activities less exploration and corporate overhead, increased by 22% to US$84.9 million (H1 FY 2014: US$69.4 million), due to the increased profit from mining activities.

Depreciation

Depreciation of US$19.6 million (H1 FY 2014: US$21.0 million) is in line with guidance.

Net financial expense

Net financial expense of US$0.2 million (H1 FY 2014: US$0.9 million) is mainly comprised of:

· net interest receivable from the BEE partners' loans of US$0.2 million;

· a net foreign exchange gain of US$1.7 million on the settlement of inter-company loans and forward exchange contracts;

· interest received on bank deposits of US$0.4 million; offset by

· a charge for the unwinding of the present value adjustment for Group rehabilitation costs of US$1.2 million; and

· interest on the Group's debt and working capital facilities of US$1.3 million (stated after the capitalisation of interest of US$6.6 million associated with the funding of assets under development).

Net unrealised foreign exchange (losses) / gains

During the Period, the Group recorded net unrealised foreign exchange losses of US$3.7 million (H1 FY 2014: US$0.9 million gain), mainly arising due to unrealised foreign exchange movements on the retranslation of foreign subsidiary intercompany loans to US Dollars.

Tax charge

The tax charge of US$19.5 million (H1 FY 2014: US$13.8 million) arises due to deferred tax (net of charges and credits), reflecting the utilisation of certain capital allowances, predominantly at Finsch and Cullinan, during the Year.

Net profit

A net profit after tax of US$39.1 million was recorded for the Period (H1 FY 2014: US$28.4 million).

Earnings per share

Basic earnings per share of 5.94 US$ cents were recorded (H1 FY 2014: 4.70 US$ cents), in line with management's stated objectives of growing the Group's earnings as the Company delivers on its production growth plans.

Cash, diamond inventories, diamond debtors and net debt

Key financial disclosures are set out in the table below.

Note:

1. Relating to the acquisition and financing of the expansions of the Koffiefontein and Kimberley Underground mines.

2. Excluding available foreign exchange settlement lines of US$21.7 million (H1 FY 2014: US$5.5 million).

Cash

As at 31 December 2014 the Group had cash at bank of US$129.6 million (H1 FY 2014: US$28.0 million) and of these cash balances, US$117.7 million was held as unrestricted cash (H1 FY 2014: US$15.7 million), US$10.3 million was held by Petra's reinsurers as security deposits on the Group's cell captive insurance structure (with regards to the Group's environmental guarantees) (H1 FY 2014: US$10.6 million) and US$1.6 million was held by Petra's bankers as security for other environmental rehabilitation bonds lodged with the Department of Mineral Resources in South Africa (H1 FY 2014: US$1.7 million).

On 25 November 2014 Petra announced that the Company and its BEE partners at the Finsch and Cullinan mines (the "BEE Partners") had entered into agreements with Absa Corporate and Investment Banking ("Absa") and FirstRand Bank Limited (acting through its Rand Merchant Bank division) ("RMB") to directly finance the BEE Partners in respect of the loans due to Petra of R1,078 million (ca. US$98 million) relating to the original acquisition of the BEE Partners' interests in Finsch and Cullinan.

The BEE Partners will repay Absa and RMB from their share of free cashflows from Finsch and Cullinan, meaning that the loans due by the BEE Partners to Petra have been settled some three to four years ahead of the previously planned repayment schedule

The refinancing transaction completed on 5 December 2014 and Petra applied the funds flowing from the refinancing to its Group treasury, further strengthening the Company's balance sheet.

Diamond inventories

As at 31 December 2014, the Group had diamond inventories of US$43.6 million (H1 FY 2014: US$49.4 million). 

Loans and Borrowings

Bank loans and borrowings at 31 December 2014 were US$175.4 million (H1 FY 2014: US$136.8 million). Bank debt facilities undrawn and available to the Group at 31 December 2014 were US$45.2 million (H1 FY 2014: US$62.0 million).

As at 31 December 2014, US$12.8 million (H1 FY 2014: US$8.8 million) of foreign exchange (hedging) settlement lines were utilised, resulting in US$21.7 million (H1 FY 2014: US$5.5 million) of foreign exchange settlement lines available to the Group. The foreign exchange settlement lines support the Group's strategic hedging strategy.

Net debt at 31 December 2014 was US$45.8 million (H1 FY 2014: US$108.8 million), demonstrating the Group's robust financial position. The Company's capital expansion programmes remain fully funded from treasury, bank facilities and cashflows.

Other than trade and other payables of US$53.5 million (H1 FY 2014: US$48.0 million), the remaining liabilities on the balance sheet comprise provisions for rehabilitation liabilities, accounting for amounts owing due to the financing of the minorities in Finsch and Cullinan, employee related provisions and deferred tax.

Cashflow

Operating cashflow for the Period was US$104.9 million (H1 FY 2014: US$91.9 million), a healthy increase on the comparative period. Similarly adjusted operating cashflow (adjusted for the cash effect of the movement in diamond debtors between each period end, excluding unrealised foreign exchange translation movements) for the Period was US$50.4 million (H1 FY 2014: US$19.2 million).

Capex

H1 FY 2015 Capex was in line with management's expectations and Capex procurement and spend against the expansion project plans remain on track.

Capex for the Period was US$125.2 million (H1 FY 2014: US$85.3 million), split as to US$93.8 million on expansion Capex (H1 FY 2014: US$69.0 million), US$24.8 million on sustaining Capex (H1 FY 2014: US$11.6 million) and US$6.6 million (H1 FY 2014: US$4.7 million) of capitalised borrowing costs related to Capex funding, which is included in the applicable mine by mine tables in the Operational Review section.

H1 FY 2015 sustaining Capex increased due to one-off investments, most notably the acquisition of a bulk sampling plant at Finsch for US$5.7 million. This plant will assist with the sampling of various sources of ore around the mine, including oversize material of the Pre-79 tailings dumps, which is not suitable for treatment through the existing treatment plant, as well as certain overburden material identified for potential treatment.

Notes:

1. Petra operates an internal projects / construction division and although this division's spend is reported in the Group's total Capex, it is policy not to account for it on a specific mine's Capex until the project is invoiced. During the Period, Petra internal projects invoiced US$0.8 million (H1 FY 2014: US$0.9 million) to operations and incurred US$0.9 million (H1 FY 2014: US$9.3 million) on further project spend.

2. Petra's annual Capex guidance is cash based and excluded capitalised borrowing costs. Given that the majority of Petra's debt funding is in relation to its expansion and development programmes, Petra's guidance is to assume that the majority of interest and financing fees will be capitalised and not expensed through the income statement. 

OperationAL REVIEW

Combined operations:

Notes:

1. H1 FY 2014 and FY 2014 figures exclude the Star and Sedibeng fissure mines, as they were classified as assets held for sale / discontinued operations.

2. 'Other' includes mining of the Ebenhaezer satellite kimberlite pipe at Koffiefontein and alluvial diamond mining at Williamson.

Petra has increased FY 2015 production guidance from ca. 3.2 Mcts to ca. 3.3 Mcts and remains on track to reach its longer term target of ca. 5 Mcts by FY 2019.

Finsch - South Africa

Note:

1. The Company is not able to precisely measure the ROM / tailings grade split because ore from both sources is processed through the same plant; the Company therefore back-calculates the grade with reference to resource grades.

Production:

Finsch performed well during H1 FY 2015, with overall carat production increasing by 4% to 1,013,117 carats (H1 FY 2014: 974,431 carats), driven by increased ROM grades.

Due to the increase in throughput and grades, the Company revised its guidance for H2 2015 to ROM tonnes of 1.5 Mt at a ROM grade of 42.5 cpht and revised its guidance for the tailings grade to ca. 29.0 cpht. This equates to an increase of ca. 200,000 carats for FY 2015 compared to previous guidance.

Sales:

As previously noted, the lower average value per carat achieved at Finsch of US$85 (H1 FY 2014: US$96) is due to the increased recovery of smaller diamonds further to the changes to the plant bottom-cut. The average price guidance for FY 2015 was lowered from US$108 to US$90.

Costs:

The on-mine unit cash cost per total tonne treated of R160 was in line with guidance of R157, and was up 12% from H1 FY 2014 (R143) mainly due to inflationary cost increases (labour and electricity).

Capex:

Capex of US$39.5 million for the Period (H1 FY 2014: US$24.7 million) was in line with guidance and the progression of the expansion project and associated underground development.

Development Programme:

Production is currently entirely from Block 4 on the 630 metre level ("mL"), which is a mature block that has been largely mined out, resulting in the ore being heavily diluted with waste rock. In order to provide earlier access to undiluted ore before the main Block 5 Cave is put in place, Petra will use the sub level cave ("SLC") mining method over four levels in Block 5 from 700 mL to 780 mL. The new Block 5 Cave will then be installed at 900 mL.

The development of the SLC made good progress during the Period, with a total of 2,777 waste development metres delivered (H1 FY 2014: 1,793 metres), 230 raiseboring metres (H1 FY 2014: 66 metres) and kimberlite development delivered 151 metres (H1 FY 2014: nil metres). The first level of the SLC is on track to deliver its first undiluted tonnes in H2 FY 2015.

As the mine's production profile gradually changes from diluted to undiluted ore, the ROM grade is expected to increase to ca. 46 cpht by FY 2016 and to ca. 58 cpht from FY 2017 onwards (up from previous guidance of 56 cpht, more accurately reflecting the impact of the plant changes).

Cullinan - South Africa

Notes:

1. Excluding exceptional diamonds, the average value for H1 FY 2015 was US$124 per carat.

2. Excluding exceptional diamonds, the average value for FY 2014 was US$146 per carat.

Production:

Cullinan's diamond production decreased 15% to 391,398 carats (H1 FY 2014: 461,338 carats), due to the ROM grade of 25.8 cpht being lower than guidance of 27.4 cpht for H1. As previously reported, there are no separate waste handling facilities at the mine and therefore all development waste has to be treated through the main plant with the ROM production tonnages, which leads to plant treatment and final recovery overloads. In the short term this remains challenging given that the expansion programme is at an advanced stage, with a high level of development metres being achieved, thereby producing a significant amount of development waste material.

Petra expects ROM grade to gradually increase going forward, due to a declining volume of waste tonnes from development, a gradual increase of the initial undiluted tonnes, and the Company's initiatives to open up access to higher grade mining areas in H2. The ROM grade at Cullinan for H2 is guided at 27.2 cpht (previously 29.4 cpht), and H2 tailings throughput is guided at 1.3 Mt at a grade of ca. 5.0 cpht. Restated ROM and tailings guidance equates to a full year FY 2015 production decrease of ca. 100,000 carats compared to previous guidance.

Sales:

The average value per carat of US$247 was higher than guidance of US$152 further to the sale of two exceptional diamonds during the Period. Excluding exceptional diamonds, the average price was US$124 and therefore guidance for FY 2015 (excluding exceptional diamonds) was reduced to US$130.

Costs:

The on-mine unit cash cost per total tonne treated of R152 increased by 3% from H1 FY 2014 (R147). The cost per tonne was higher than guidance of R138 due to a reduction in planned tailings tonnes treated, being 11% below guidance. As noted in the 26 January 2015 Trading Update, Petra's strategy to mitigate the impact of the ongoing power issues in South Africa has been to reduce tailings production in accordance with Eskom's requests to reduce power usage, thereby ensuring that it can maintain the higher value underground production.

Absolute on mine cash costs of R381 million for the Period remained well controlled and in line with plans and it is only the reduction in tailings tonnages that has led to a higher unit cost.

Capex:

Capex of US$54.0 million (H1 FY 2014: US$37.2 million) was in line with guidance.

Development Programme:

Petra's expansion programme at the mine will establish a new block cave, known as C-Cut Phase 1, on the western side of the orebody in the upper portion of the major C-Cut resource and will take annual production to ca. 2.2 Mcts by FY 2019 (comprising 2.0 Mcts ROM and 0.2 Mcts tailings).

The shaft deepening and underground development at Cullinan continued to progress in line with expectations, with the C-Cut Phase 1 waste development yielding a total of 2,361 metres (H1 FY 2014: 2,710 metres), raiseboring delivering 389 metres (H1 FY 2014: 544 metres) and kimberlite development delivering 967 metres (H1 FY 2014: 2 metres).

Koffiefontein - South Africa

Production:

ROM production at Koffiefontein increased by 6% to 9,709 carats (H1 FY 2014: 9,158 carats) as kimberlite development in the 560 mL SLC yielded the first undiluted ROM tonnes from this new production area. However, overall production decreased by 30% largely due to the scheduled depletion of recovery tailings treated in the comparative period. Full-scale SLC production has commenced and is on track to deliver circa 45,000 carats ROM production in H2.

Sales:

Koffiefontein's average value per carat of US$389 was lower than guidance of US$654 due to the lower contribution of ROM material than planned in H1 (ROM carats are valued at approximately three times as much as the carats from the Ebenhaezar satellite pipe), as well as the softer market. Guidance for FY 2015 was altered to US$556.

Costs:

The on-mine unit cash cost per total tonne treated of R263 increased by 14% from H1 FY 2014 (R231). The cost per tonne increased due the additional costs associated with increased ROM and Ebenhaezer tonnes treated in this Period, compared to the treatment of low-cost recovery tailings in H1 FY 2014. Production throughput levels are expected to significantly increase in H2 in line with accessing the new undiluted ROM mining areas, benefitting the unit cost per tonne.

Absolute on mine cash costs of R122 million for the Period remained well controlled and in line with plans and it is only the shortfall compared to planned tonnages treated for the Period that resulted in a higher unit cost.

Capex:

Capex for the Period of US$13.5 million (H1 FY 2014: US$6.0 million) was primarily focused on underground development.

Development Programme:

Petra's expansion plan at Koffiefontein involves the development of an SLC from 560mL to 600mL, as well as opening up access to new SLC production areas on 520mL, and is expected to increase production from 50,375 ctpa in FY 2014 to ca. 100,000 ctpa by FY 2017 (ROM only).

During the Period, waste development delivered a total of 660 metres (H1 FY 2014: 857 metres) and kimberlite development delivered 890 metres (H1 FY 2014: 169 metres) primarily in the 560mL SLC area.

Kimberley Underground - South Africa

Production:

Kimberley Underground's production increased 14% to 72,012 carats (H1 FY 2014: 63,436 carats) due to an increase in ROM tonnes treated, partially offset by reduced grades following the treatment of lower-grade surface resources to utilise available plant capacity.

Sales:

The average value per carat of US$321 was slightly below guidance of US$329 and guidance for FY 2015 was adjusted to US$320.

Costs:

The on-mine unit cash cost per total tonne treated of R251 decreased by 20% on H1 FY 2014 mainly due to increased throughput.

Capex:

Capex for the Period increased to US$5.9 million (H1 FY 2013: US$3.3 million) mainly as a result of underground development and purchasing of mining equipment.

Development plan:

Petra's mine plan at Kimberley Underground will take steady state production to 170,000 ctpa by FY 2016. During the Period, a total of 377 waste development metres were delivered (H1 FY 2014: 45 metres). Kimberlite development delivered 15 metres (H1 FY 2014: nil metres).

Williamson - Tanzania

Production

Williamson's diamond production increased 15% to 98,949 carats (H1 FY 2014: 86,309 carats), with increased plant throughput of 2.0 Mt treated during H1 FY 2015 (H1 FY 2014: 1.5 Mt) offsetting the lower ROM grades achieved (4.8 cpht versus the expected 5.5 cpht (H1 FY 2014: 5.2 cpht)).

Sales

Williamson produces high quality diamonds and the average value of US$352 was significantly higher than management guidance of US$295 further to a coarser diamond size distribution. Guidance was increased for FY 2015 to US$325.

Costs:

The on-mine unit cash cost per total tonne treated of US$12 was maintained compared to H1 FY 2014 and remains in line with guidance. Absolute on mine cash costs increased year on year in line with the increased production.

Overall production costs (cash and non-cash) increased due to a release in diamond inventory and royalties payable in line with the increased sales.

Development Plan:

Petra's expansion plan at Williamson will see tonnage throughput ramp up to ca. 5 Mtpa from FY 2017, which at a grade of ca. 6.0 cpht is expected to deliver 300,000 ctpa. The mine is on track to exceed its production target of 3.7 Mt for FY 2015. 

EXPLORATION

Petra's exploration programme in Botswana remains focused at present on the evaluation of the KX36 kimberlite discovery, as well as the search for and the assessment of other kimberlites in its current prospecting licenses.

KX36

Petra completed an initial +800 tonnes large diameter drilling ("LDD") campaign in FY 2013, which rendered a total of ca. 285 carats (including three stones of approximately 5 carats, two of which were of gem quality). This programme was followed-up in FY 2014 by a third phase of narrow diameter drilling ("NDD") to improve delineation of the KX36 pipe and to provide additional geological and geotechnical information.

The Company is now carrying out a second phase of LDD bulk sampling in Q2 FY 2015, in order to obtain circa 720 carats for a more representative diamond parcel of circa 1,000 carats, which will be used for further resource modelling and diamond value determination. A modular 10 tonnes per hour bulk sampling plant is currently being commissioned on site and results from this drilling programme will be available in H1 FY 2016.

There is an ongoing assessment of the indicator mineral plume area in the immediate surrounds of KX36.

Other Exploration Projects

Petra is continuing to investigate prospective targets in the Gope Northeast and the Kokong Field areas of Botswana.

Manica Minerals Co-operation Agreement

The co-operation agreement with Manica Minerals is progressing well and is focused on evaluation of known kimberlites in areas close to the Orapa and Jwaneng mines.

SAFETY

The health and safety of all employees is of the utmost importance to the Company and Petra has a wide range of initiatives, training and awareness programmes in place to foster a zero harm workplace.

The Group's LTIFR for H1 FY 2015 of 0.28 (FY 2014: 0.28) demonstrates management's focus on this important area and is a good achievement in comparison to national and international industry standards, particularly for underground operations.

CORPORATE AND GOVERNANCE

Dividend policy

With the aim of generating long-term sustainable value for shareholders, the Board of Petra considers it appropriate to commence the payment of dividends for FY 2015. Petra intends to pay a progressive dividend as the Company moves through its current phase of significant capital spend and increasing free cashflow. Petra will thus pay a maiden full year dividend of 2.0p for the 2015 financial year.

Petra will continue to adopt a prudent capital management strategy in relation to excess capital generated from operations. The Board will periodically review the wider capital requirements of the business and will return excess capital to shareholders when appropriate.

Board Changes

In November 2014, Petra appointed Ms Octavia Matloa to the Board as an Independent Non-Executive Director. Ms Matloa was also appointed as a member of Petra's Audit Committee and has brought extensive financial and audit experience to the Company, as well as knowledge of the mining sector and the South African business environment.

Helam

As previously announced, a business review of Helam was undertaken during H2 FY 2014 and the Company plans to complete this process shortly.

PRINCIPAL BUSINESS RISKS

The Group is exposed to a number of risks and uncertainties which could have a material impact on its long-term development, and performance and management of these risks is an integral part of the management of the Group.

An overview of the key risks which could affect the Group's operational and financial performance was included in the Company's 2014 Annual Report, which can be accessed at www.petradiamonds.com. These may impact the Group over the medium to long term; however the following key risks have been identified which may impact the Group over the next six months.

Short term demand and prices

The stability of financial markets and the corresponding effect on consumer demand impacts the Group and the diamond industry as a whole. Whilst the medium to long term fundamentals of the diamond market remain intact, with demand forecast to significantly outpace supply, in the short term the prevailing climate of global economic uncertainty may cause some volatility in rough diamond pricing.

Although diamond prices are influenced by numerous factors beyond the Company's control, the Group's management closely monitors developments in the international diamond market (across the pipeline from the rough market to the retail consumer market) to be in a position to react in a timely manner to changes in rough diamond prices and demand.

In order to withstand periods of softer diamond pricing, the Company focuses on:

· stringent cost control at its operations and at a corporate level;

· maintaining a robust balance sheet via prudent capital management and allocation; and

· maximising the value of its production via optimal plant recovery processes.

ROM grade volatility

The management of ROM grades, specifically at Finsch and Cullinan, remains a challenge due to the mature nature and dilution of the current mining areas. As a result, volatility in recovered ROM grades at these two operations can be expected until such time as new mining areas have been accessed and deliver significant contributions of undiluted ore to the production profile.

Petra is highly focused on managing this issue. At Finsch, grade volatility has been alleviated further to the changes to the plant bottom-cut which have seen ROM and tailings grades increase significantly. At Cullinan, the Company has taken a number of steps to mitigate this challenge and does not expect any further reduction in the ROM grade due to a declining volume of waste tonnes from development, a gradual increase of the initial undiluted tonnes, and the Company's initiatives to open up access to higher grade mining areas in H2 FY 2015.

Exchange rates

With Petra's operations mainly in South Africa, but diamond sales based in US Dollars, the volatility and movement in the Rand is a significant factor to the Group. Also, the Group undertakes transactions in a number of different currencies. Fluctuations in these currencies can have a significant impact on the Group's performance.

In order to mitigate currency risk, the Group continually monitors the movement of the Rand against the US Dollar and takes expert advice from its bankers in this regard. It is the Group's policy to hedge a portion of future US Dollar sales revenue when weakness in the Rand deems it appropriate.

Labour unrest in South Africa

The Group's production, and to a lesser extent its project development activities, are dependent on a stable and productive labour workforce. In September 2014, Petra entered into a three-year wage agreement with the National Union of Mineworkers. Whilst labour relations are currently stable, there remains the potential for further unrest in South Africa. Petra therefore remains highly focused on managing labour relations and on maintaining open and effective communication channels with its employees and the appropriate union representatives at its operations.

Power in South Africa

South Africa's power issues have been well publicised. Eskom's approach is to consult with industry before implementing load shedding, with advanced notice giving customers time to react appropriately. Petra responds to such requests by temporarily halting tailings production at the applicable South African mines, so as to minimise disruption of the higher value underground ROM production. This strategy has ensured that there has been no material impact on production. Petra remains highly focused on managing this ongoing issue and, while it is disruptive to operations, it does not represent a material risk at this point in time.

OUTLOOK

The Company is continuing to deliver on its Group targets, with production forecast to grow further to ca. 3.3 million carats in FY 2015 and on to ca. 5 million carats in FY 2019. The continued focus on operational performance, combined with our robust financial position, places the Company in a strong position to capitalise on the positive medium- to long-term outlook for our industry.

Johan Dippenaar

Chief Executive Officer

19 February 2015

Notes:

1. The following exchange rates have been used for this announcement: average rate for the Period US$1:ZAR10.99; closing rate as at 31 December 2014 US$1:ZAR11.57.

2. The following definitions have been used in this announcement:

a. ct: carat

b. cpht: carats per hundred tonnes

c. exceptional diamonds: stones that sell for more than US$5 million each

d. ha: hectares

e. LTIFR: lost time injury frequency rate

f. Mcts: million carats

g. mL: metre level

h. Mt: million tonnes

i. ROM: run-of-mine, i.e. relating to production from the primary orebody

3. Diamond inventory carrying values are stated at the lower of cost of production on the weighted average basis or estimated net realisable value.

PETRA DIAMONDS LIMITED

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2014

The H1 FY 2014 comparative has been restated as the Sedibeng JV and Star operations were reclassified to discontinued operations (refer to note 8) in FY 2014.

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2014

¹ Exchange differences arising on non-controlling interest, translation of foreign operations and (losses) / gains on foreign exchange hedges transferred directly to equity will be reclassified to profit and loss if specific future conditions are met.

² During FY 2014 the Company disposed of the Sedibeng JV and Star operations and recognised a foreign exchange translation loss of US$8.5 million.

 PETRA DIAMONDS LIMITEDCONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2014

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2014

 PETRA DIAMONDS LIMITED

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2014

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2014