Petra Diamonds Regulatory News (PDL)

This announcement contains inside information

Petra Diamonds Limited

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

Interim results for the six months to 31 December 2018

Petra Diamonds Limited announces its interim results (unaudited) for the six months to 31 December 2018 ("the Period" or "H1 FY 2019" or "H1").

Further to the sale of Petra's interest in the Kimberley Ekapa Mining Joint Venture ("KEM JV") and Helam Mining ("Helam"), which completed on 5 and 6 December 2018 respectively, all figures below are stated excluding the KEM JV and Helam operations, unless otherwise specified.

SUMMARY

Operations

· Safety: LTIFR improved to 0.16 (H1 FY 2018: 0.24).

· Production up 10% to 2,019,147 carats (H1 FY 2018: 1,843,956 carats).

· Carats sold increased 15% to 1,736,357 (H1 FY 2018: 1,510,361 carats) due to increased production.

· Absolute costs remain within expectations despite inflationary pressures.

· Capex down 41% to US$40.6 million (H1 FY 2018: US$69.4 million) excluding capitalised borrowing costs of US$3.7 million (H1 FY 2018: US$16.2 million), in line with the Group's declining Capex profile.

Financial

· Revenue: US$207.1 million (H1 FY 2018: US$191.8 million);

· Adjusted EBITDA3: US$75.6 million (H1 FY 2018: US$80.8 million);

· Adjusted net loss after tax4: US$4.5 million (H1 FY 2018: US$7.2 million profit);

· Loss on discontinued operations relating to KEM JV and Helam of US$39.7 million (H1 FY 2018: US$53.9 million loss - KEM JV only);

· Net loss after tax: US$57.9 million (H1 FY 2018: US$117.7 million loss);

· Cash generated from operations: US$62.8 million (H1 FY 2018: US$38.9 million);

· Basic loss per share: 6.57 US cents (H1 FY 2018: basic loss per share of 15.92 US cents); and

· Net debt10 of US$559.3 million (30 June 2018: US$520.7 million); unrestricted cash and bank facilities of US$181.3 million (30 June 2018: US$225.6 million). As at 31 December 2018, the facilities were undrawn.

Outlook

· Full year production guidance of ca. 3.8 - 4.0 Mcts maintained;

· The Company's first tender of H2 FY 2019 in February is in the process of being finalised; provisional results indicate price increases of ca. 1% on a like-for-like basis compared to prices achieved in H1 FY 2019;

· The Company continues to hedge the conversion of US$-based sale proceeds to South African Rands with the aim to protect a floor of ZAR14.00 to US$1 with ca. 50% of its remaining H2 FY 2019 sales covered at these levels;

· The reduction in Petra's net debt remains a priority. However, should product mix and pricing remain at the levels achieved during H1, the Company expects its net debt position at 30 June 2019 to remain largely in line with the balances as at 31 December 2018, assuming BEE debt repayments are maintained according to the existing amortisation schedule (ca. US$25 million capital and interest due to be paid in May 2019), no sales proceeds from the blocked Williamson parcel being realised and no input VAT being recouped in Tanzania during H2. We are encouraged by the solid start in H2 production, specifically also Koffiefontein ramping back up to expected levels of production, coupled with what is usually a seasonally stronger period in the diamond market; and

· The Company's forecasts indicate that the Group continues to retain sufficient liquidity from existing cash resources and operating cashflows to meet its liabilities as they fall due.

Johan Dippenaar, CEO of Petra, commented:

"Whilst we delivered solid production and continued to improve our safety performance in the first half, we recognise the impact the lower value of the product mix at Cullinan had on our financial results for the Period. During the second half, we will accelerate the installation of drawpoints to improve access across the full footprint of the C-Cut Phase 1 block cave. Our focus remains to continue to deliver operational- and capex efficiencies at all of our operations, in order to generate positive free cashflow and subsequent debt reduction.

As we have also communicated today, these are the last results that I will be reporting as CEO, and I am pleased that we have accomplished our operational targets for the Period. I would like to take this opportunity to thank Petra's Board, management and staff for their tremendous support over the last fourteen years. I am very proud of the team's efforts to grow the company and more recently to overcome a number of challenges to lay the foundations for Petra's next phase of delivery."

SUMMARY OF RESULTS (unaudited)

The following exchange rates have been used for this announcement: average for H1 FY 2019 US$1:ZAR14.19 (H1 FY 2018: US$1: ZAR13.40, FY 2018: US$1:ZAR12.86); closing rate as at 31 December 2018 US$1:ZAR14.35 (31 December 2017 US$1:ZAR12.38, FY 2018: US$1:ZAR13.73).

Notes:

The Group uses several non-GAAP measures above and throughout this report to focus on actual trading activity by removing certain non-cash or non-recurring items and discontinued operations. These measures include adjusted mining and processing costs, profit from mining activities, adjusted EBITDA, adjusted net profit after tax, adjusted earnings per share, adjusted US$ loan note, net debt and consolidated net debt for covenant measurement purposes. As these are non-GAAP measures, they should not be considered as replacements for IFRS measures. The Group's definition of these non-GAAP measures may not be comparable to other similarly titled measures reported by other companies. The Board believes that such alternative measures are useful as they exclude one-off items such as the impairment of mines and non-cash items to help portray a clearer understanding of the underlying trading performance of the Group.

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

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

3. Adjusted EBITDA is stated before depreciation, share-based expense, net finance expense (excluding net unrealised foreign exchange gains and losses), tax expense (excluding taxation charge on unutilised Capex benefits), loss / profit on discontinued operations, impairment charges, net unrealised foreign exchange gains and losses and taxation charge on reduction of unutilised Capex benefits.

4. Adjusted net loss after tax is net loss after tax stated before losses on discontinued operations, impairment charge, net unrealised foreign exchange gains and losses and taxation charge on reduction of unutilised Capex benefits.

5. Impairment charge of US$nil (30 June 2018: US$66.0 million and 31 December 2017: US$66.0 million) was due to the Group's impairment review of the Koffiefontein operation). Refer to note 15 for further details.

6. Adjusted EPS from continuing operations is stated before impairment charge, net unrealised foreign exchange gains and losses and taxation charge on reduction of unutilised Capex benefits.

7. The loss on discontinued operations reflect the results of the KEM JV and Helam operations (net of tax), including impairment (H1 FY 2018 results have been restated for the KEM JV for comparability. The Helam prior period results are insignificant and as such have not been restated as per the requirements of IFRS 5, refer to Note 16.

8. The US$ loan note represents the gross capital of US$650 million (30 June 2018: US$650 million and 31 December 2017: US$650 million), excluding transaction costs.

9. During July 2018, the Company repaid the RCF (capital plus interest) of US$73.1 million and WCF (capital plus interest) of US$33.6 million in full, however the facilities were not cancelled and remain available.

10. Net debt is the US$ loan notes and bank loans and borrowings net of cash at bank (including restricted cash).

11. Consolidated Net Debt for covenant measurement purposes is bank loans and borrowings plus loan notes, less cash, less diamond debtors and includes the BEE guarantees of ca. US$72.5 million (ZAR1,039 million) (30 June 2018: US$88.8 million (ZAR1,218 million) and 31 December 2017: US$109.3 million (ZAR1,353 million)) issued by Petra to the lenders as part of the BEE financing concluded in December 2014 and which are included in the Group's balance sheet as BEE loans payable. This measure differs to the net debt in the table above.

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

ANALYST PRESENTATION AND WEBCAST

A presentation for analysts will be held at 9:30am GMT on 18 February 2019 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:

https://www.investis-live.com/petra-diamonds/5c483de0186fe71000c9defd/ttgs

A conference call line will also be available to allow participants to listen to the webcast by dialling one of the following numbers shortly before 9:30am GMT:

From the UK (toll free): 0800 358 9473

From South Africa (toll free): 080 011 1446

From the rest of the world: +44 33 3300 0804

Participant passcode: 47549191

A recording of the webcast will be available from 1:00pm GMT on 18 February 2019 on the website and on the link above.

Due to Monday 18 February 2019 being a public holiday in the United States, Petra will hold a conference call for international investors on Tuesday 19 February 2019 instead.

International investor Call - 4:00pm GMT / 11:00am EST - Tuesday 19 February

This call will include a discussion and a Q&A session with international investors. Participants are therefore advised to listen to the replay of the earlier webcast in advance, as the main management commentary will not be repeated.

From the United States (toll free): 1 855 857 0686

From the rest of the world: +44 333 300 0804

From the UK (toll free): 0800 358 9473

Participant passcode: 96726809

For further information, please contact:

Petra Diamonds, London Telephone: +44 20 7494 8203

Marianna Bowes investorrelations@petradiamonds.comSalisha Ilyas

Buchanan Telephone: +44 20 7466 5000

(PR Adviser) pdl@buchanan.uk.com

Bobby Morse

About Petra Diamonds Limited

Petra Diamonds is a leading independent diamond mining group and a consistent supplier of gem quality rough diamonds to the international market. The Company has a diversified portfolio incorporating interests in three underground producing mines in South Africa (Finsch, Cullinan and Koffiefontein) and one open pit producing mine in Tanzania (Williamson). Petra also conducts a limited exploration programme in Botswana and South Africa, which is currently under review.

Petra's strategy is to focus on value rather than volume production by optimising recoveries from its high-quality asset base in order to maximise their efficiency and profitability. The Group has a significant resource base of ca. 290 million carats, which supports the potential for long-life operations.

Petra conducts all operations according to the highest ethical standards and will only operate in countries which are members of the Kimberley Process. The Company aims to generate tangible value for each of its stakeholders, thereby contributing to the socio-economic development of its host countries and supporting long-term sustainable operations to the benefit of its employees, partners and communities. Petra is quoted with a premium listing on the Main Market of the London Stock Exchange under the ticker 'PDL' and is a constituent of the FTSE4Good Index. For more information, visit www.petradiamonds.com.

CEO'S REVIEW

In H1 FY 2019, Petra delivered solid production results, with production increasing 10% to 2,019,147 carats from 1,843,956 carats in the same period last year. We continued to see production reaching consistent levels as Petra's main underground expansion projects are nearing completion, with both Finsch's Block 5 SLC and Cullinan's C-Cut Phase 1 continuing to ramp up during the Period. We have reiterated our full year FY 2019 production guidance of 3.8 - 4.0 Mcts.

For the Period under review, Finsch and Williamson both delivered solid results and production at Cullinan ramped up as expected. That said, the lower value product mix delivered at Cullinan offset the impact of higher volumes as production from the C-Cut phase 1 was largely concentrated in the south-western part of the footprint and therefore not representative of expected production from the full extent of the block cave. At Koffiefontein, ROM production started the Period on a positive trend, but community unrest, which hindered employee attendance, and lower than expected plant availability adversely impacted production during the second quarter. Subsequently, additional crushing capacity has been introduced to the plant, employee attendance has normalised and monthly production is currently ramping back up to levels observed in Q1 FY 2019. Post Period end, Williamson recovered two good quality pink stones (21ct and 10ct) which are in the process of being sold as part of the February 2019 tender.

The continued improvement in production performance was underpinned by a solid safety performance, with the lost time injury frequency rate falling to 0.16. This improvement in performance is extremely important to us as safety is the most important personal and organisational value and we continue to place great emphasis on this area. We will however continue to strive to do better, with our aim being a zero-harm workplace.

Further to the increased production in the Period, Petra's revenue increased 8% to US$207.1 million. With adjusted EBITDA of US$75.6 million, the Company recorded an adjusted EBITDA margin of 36% (H1 FY 2018: 42%), which is lower than the comparable Period, mainly due to a lower incidence of high value stones; specifically at Cullinan; weaker rough diamond prices across all the operations. and the community unrest at Koffiefontein. In Rand terms, the Group achieved absolute on mine costs in line with expectations.

The Group recorded a net loss of US$57.9 million for the Period, including the US$39.7 million loss incurred on the disposal of the KEM JV and Helam operations. Refer to Note 16 for further details.

Capex reduced by 41% in H1 FY 2019 to US$40.6 million (excluding capitalised borrowing costs) in line with Petra's declining capex profile.

SAFETY

The Group LTIFR reduced to 0.16 (H1 FY 2018: 0.24), with zero fatalities during the Period. The health and safety of our employees remains our highest priority and we continue to strive for a zero-harm workplace.

DIAMOND MARKET

The diamond market started the first half of FY 2019, in line with expectations, as seasonally the slowest time of the year in the rough diamond sales calendar. During September and October 2018, whilst demand for higher value stones remained strong, the rough diamond market experienced a softening in demand for lower value small diamonds impacting overall sales prices. This softening in demand was driven by a weakening in global markets and by seasonal destocking at a number of Indian midstream companies. During November and December demand for the lower value small stones saw some recovery due to renewed seasonal demand and the replenishment of stocks by companies in the cutting sector. In retail markets, generally the commentary referred to stable sales over the festive period in constant US-Dollar terms, with marginal declines in absolute terms.

The period from January to April is traditionally the strongest season of the year for the rough diamond market, as the pipeline commences restocking following the festive retail sales. The Company will hold four tenders during H2 FY 2019 and expects market conditions to remain stable during this time.

Diamond Pricing

Rough diamond prices (on a like-for-like basis, in comparison to H2 FY 2018) fell ca. 4%. As noted above, pricing at our first tender in H2 FY 2019 rose ca. 1% on a like-for-like basis compared to H1 FY 2019.

Cullinan prices achieved during the Period are below historical annual averages. Historically, Cullinan averaged US$140/ct from the sale of over 8.5Mcts for the 9.5-year period July 2009 to December 2018, and recorded:

· on an annual basis: high of US$185/ct and low of US$120/ct;

· on a half yearly basis: high of US$247/ct and low of US$87/ct; and

· on a quarterly basis: high of US$293/ct and low of US$63/ct.

The table below summarises diamond pricing achieved for H1 FY 2019, H1 FY 2018 and FY 2018.

FINANCIAL RESULTS

Revenue

Revenue increased 8% to US$207.1 million in the Period (H1 FY 2018: US$191.8 million) driven by a 15% increase in sales volumes from 1,510,361 carats to 1,736,357 offset by lower prices per carat realised at all operations with the exception of Finsch.

Mining and processing costs

The mining and processing costs for H1 FY 2019 were, as in past periods, comprised on-mine cash costs as well as other operational expenses. A breakdown of the total mining and processing costs for the Period is set out below.

Notes:

1. Includes all direct cash operating expenditure at operational level, i.e. labour, consumables, utilities and on-mine overheads.

2. Certain technical, support and marketing activities are conducted on a centralised basis.

3. Excludes exploration and corporate / administration.

On-mine cash operating costs in H1 FY 2019 remained in line with expectations, despite the ongoing inflationary pressures. On-mine cash operating costs increased by 9% compared to H1 FY 2018, mainly due to:

· increased contribution from underground tonnes and volumes treated, due to the ongoing ramp-up of ROM production across the operations and the Cullinan Plant running at planned throughput levels for the Period (6% increase);

· inflationary increases, including the impact of labour costs (8% increase); and

· offset by, the effect of translating South African operations' ZAR denominated costs at a weaker ZAR/USD exchange rates (5% decrease).

Royalties increased to US$7.3 million (H1 FY 2018: US$1.9 million) due to the increased profit net of capex at Finsch, as defined in the royalty legislation of South Africa, on the back of increased profits and a reducing unredeemed capex profile.

Profit from mining activities

Profit from mining activities was down 7% to US$80.1 million (H1 FY 2018: US$86.3 million), due to lower rough diamond prices realised during the Period and an increase in mining costs.

Exploration

Petra incurred US$0.2 million of exploration expenditure during the Period (H1 FY 2018: US$0.4 million). Refer to the 'Exploration' section for further information.

Corporate overhead - General and Administration

Corporate overhead decreased to US$4.3 million for the Period (H1 FY 2018: US$5.1 million) benefitting in USD terms from the weakness in the ZAR during the Period.

Adjusted EBITDA

Adjusted EBITDA, being profit from mining activities less exploration and corporate overhead, decreased by 6% to US$75.6 million (H1 FY 2018: US$80.8 million), representing an adjusted EBITDA margin of 36% (H1 FY 2018: 42%), which is lower mainly due to lower incidence of high value stones, specifically at Cullinan, weaker rough diamond prices across all the operations and community unrest and lower than expected plant availability at Koffiefontein.

Depreciation

Depreciation for the Period was US$50.8 million (H1 FY 2018: US$39.1 million), mainly due to increased production from the newly commissioned assets associated with the expansion programmes and increased throughput.

Impairment charge

No impairment charge was considered necessary in the current Period. During H1 FY 2018, as a result of the impairment review carried out at the Koffiefontein operation an impairment charge of US$66.0 million was recognised.

Net financial expense (including unrealised foreign exchange)

Net financial expense of US$45.4 million (H1 FY 2018: US$16.0 million) increased due to a decrease in the capitalisation of interest as the Company moves from a phase of significant capital expenditure and the increase in net unrealised foreign exchange losses. Net financial expense comprises:

· interest received on bank deposits of US$0.4 million (H1 FY 2018: US$0.5 million);

· realised foreign exchange gains of US$nil (H1 FY 2018: US$1.8 million) on settlement of forward exchange contracts.

Offset by:

· Interest on the Group's debt and working capital facilities of US$20.5 million (H1 FY 2018: US$8.8 million) (stated after the capitalisation of interest of US$3.7 million (H1 FY 2018: US$16.2 million) associated with the funding of assets under development); the year-on-year increase is as a result of expansion programmes transitioning to production phases;

· net interest payable on the BEE partners' loans of US$4.9 million (H1 FY 2018: US$9.3 million);

· realised foreign exchange losses of US$2.8 million (H1 FY 2018: US$nil) on the settlement of forward exchange contracts;

· net unrealised foreign exchange losses of US$13.7 million (H1 FY 2018: US$2.9 million gain) representing (i) the unrealised foreign exchange gains on the foreign currency retranslation of cross border loans considered to be repayable in the foreseeable future (US$9.5 million) and (ii) unrealised losses on forward exchange contracts (US$4.2 million); and

· a charge for the unwinding of the present value adjustment for Group rehabilitation costs of US$3.9 million (H1 FY 2018: US$3.1 million). 

Tax charge

The tax credit of US$2.5 million (H1 FY 2018: US$23.4 million tax charge including the one-off settlement with the South African Revenue Service ("SARS") on the right to claim a reduction on unutilised capital allowances of US$7.9 million), comprising of deferred tax credit of US$7.6 million and an income tax charge of US$5.1 million (due to taxable profits generated by Finsch). The tax credit for H1 FY 2019 arises due to deferred tax (net of charges and credits), reflecting the deductible temporary differences at Cullinan.

Loss on discontinued operations

The loss on discontinued operations of US$39.7 million relates to the Group's disposal during the Period of its interests in the KEM JV and Helam operations and is made up of a US$3.6 million disposal consideration for KEM JV, net profit of US$6.7 million attributable to KEM JV and a net loss of US$0.7 million at Helam for the Period 1 July 2018 to disposal date and the recycling of the foreign currency translation reserve of US$1.5 million offset by a net asset disposal amount of US$14.6 million, a US$34.5 million recycling of non-controlling interest and a US$1.7 million impairment of current trade and other receivables. Refer to Note 16 for the detailed breakdown.

Net Loss

A net loss after tax of US$57.9 million was recorded for the Period (H1 FY 2018: US$117.7 million).

Earnings per share

Basic loss per share was 6.57 US cents (H1 FY 2018: basic loss per share of 15.92 US cents).

Cash generated from operations

Cash generated from operations for the Period increased to US$62.8 million (H1 FY 2018: US$38.9 million) mainly due to lower working capital cash outflow.

Cash, loans and borrowings and net debt

Cash

As at 31 December 2018 the Group had cash at bank of US$90.7 million (H1 FY 2018: US$119.1 million) and of these cash balances, US$76.8 million was held as unrestricted cash (H1 FY 2018: US$104.7 million), US$13.0 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 2018: US$13.4 million) and US$0.9 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 2018: US$1.0 million).

Loans and Borrowings

The Group had loans and borrowings (measured under IFRS) at Period end of US$649.5 million (H1 FY 2018: US$760.3 million), comprised of the loan notes plus accrued interest of US$649.5 million (H1 FY 2018: US$647.1 million) and bank loans and borrowings of US$nil (H1 FY 2018: US$113.2 million). During the Period, the Company settled (without cancelling) its bank loans and borrowings (capital plus interest) of US$106.7 million with its lending group. Bank debt facilities undrawn and available to the Group at 31 December 2018 were US$104.5 million (H1 FY 2018: US$7.4 million).

Net debt at 31 December 2018 was US$559.3 million (30 June 2018: US$520.7 million). During H1 FY 2019 positive operational cash flows were offset by:

· US$21.2 million advances to BEE partners, largely related to servicing of BEE bank debt in line with the Group's stated intent of reducing Consolidated net debt for covenant measurement purposes (which includes BEE banking facilities) with the advances recoverable against future BEE partner distributions;

· US$8.6 million funding advanced to the KEM JV, recoverable during H2 FY 2019;

· ca. US$10 million shortfall in revenues due to ongoing volatility in Cullinan's product mix;

· ca. US$9 million due to a 4% downward movement in like-for-like pricing; and

· ca. US$7 million due to the community unrest and lower than expected plant availability at Koffiefontein.

Covenant Measurements attached to banking facilities

The Group has a number of covenants related to its banking facilities, which can be found on Petra's website at: https://www.petradiamonds.com/investors/fixed-income-investors/banking-covenants/ . Covenant ratios are measured bi-annually on a rolling twelve-month period to 30 June and 31 December respectively.

The Company's covenants related to its banking facilities are as outlined below:

The Group closely monitors and manages its liquidity risk. The Group has sufficient cash resources to meet its working capital and capital development requirements, although headroom remains sensitive to diamond prices, foreign exchange rates and production.

BEE loans receivable and payable

BEE loans receivable of US$79.0 million (H1 FY 2018: US$60.8 million) relate to the Group's BEE partners financing their interests in the Koffiefontein mine, advances provided to the BEE partners to enable the BEE partners to discharge interest and capital commitments under the BEE Lender facilities (refer to the information below regarding the guarantee provided by the Company) and other advances to the BEE partners which have enabled the BEE partners to make distributions to their beneficiaries (Petra directors and senior managers do not qualify as beneficiaries under the IPDET Trust Deed). During H1 FY 2019, Petra advanced US$18.3 million to facilitate the servicing of capital and interest payments on behalf of the BEE Partners and US$2.9 million for distributions to the beneficiaries of the Itumeleng Petra Diamonds Employee Trust and shareholders of Kago.

The BEE loans payable of US$112.4 million (H1 FY 2018: US$116.3 million) relate to the initial acquisition loan funding advanced by the Group's BEE partners to the operations to acquire their investments in the Cullinan, Finsch and Koffiefontein mines. The repayment of these loans by the mines to the BEE partners will be from future free cashflows generated by the mining operations.

Other Liabilities

Other than trade and other payables of US$72.1 million (comprising US$20.1 million trade creditors, US$11.7 million employee related accruals, current taxation payable of US$8.8 million and US$31.5 million other payables) (H1 FY 2018: US$123.1 million), the remaining liabilities on the balance sheet mainly comprise provisions for rehabilitation liabilities, post retirement employee related provisions and deferred tax.

Capex

H1 FY 2019 Capex for the Period was US$44.3 million (H1 FY 2018: US$85.6 million). The total Capex figure comprised of:

· US$28.5 million on expansion Capex (H1 FY 2018: US$60.2 million);

· US$12.1 million on sustaining Capex (H1 FY 2018: US$9.2 million); and

· US$3.7 million on capitalised borrowing costs with regards to the expansion Capex (H1 FY 2018: US$16.2 million).

Notes:

1. Capex for the Period includes US$3.7 million (H1 FY 2018: US$16.2 million) of capitalised borrowing costs, which is also included in the applicable mine by mine tables above. Petra's annual Capex guidance is cash based and excludes capitalised borrowing costs.

Dividend

The Board remains focused on reducing net debt to a level of 2x or less EBITDA where after dividend payments will be considered.

OPERATIONAL REVIEW

H1 FY 2019 Sales, Production and Capex - Summary

Notes:

1. 'Other' includes alluvial diamond mining at Williamson.

H1 FY 2019 production increased 10% to 2,019,147 carats (H1 FY 2018: 1,843,956 carats) mainly due to a 30% increase in Cullinan ROM production. Total ROM production increased 13% to 1.9 Mcts in the Period versus 1.7 Mcts in H1 FY 2018 as the expansion projects continue to deliver more undiluted ore. The increase in production was impacted by the community unrest and lower than expected plant availability experienced at Koffiefontein during the Period. The Company has maintained its full year production guidance of ca. 3.8 - 4.0 Mcts.

The commentary below relates to operational results for the Period. Further detailed operational guidance is available on the Company's website at: https://www.petradiamonds.com/investors/analysts/analyst-guidance/. Guidance for FY 2019 remains as published, including cost guidance.

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's ROM carat production was flat at 927,934 carats (H1 FY 2018: 931,859 carats). A planned winder upgrade was successfully completed, which necessitated a planned shut down from 21 December 2018 to 4 January 2019. Overall, Finsch production decreased by 9% to 947,424 carats (H1 FY 2018: 1,036,596 carats) due to the planned reduction in tailings production as the tailings resource nears depletion.

Sales:

Sales decreased 14% to US$87.0 million (H1 FY 2018: US$100.8 million), further to lower sales volumes during the Period.

Costs:

The on-mine unit cash cost per total tonne treated was ZAR400, an increase of 23% from H1 FY 2018 (ZAR325), due to all underground tonnes being mined from block 5 SLC and the planned reduction in the treatment of lower cost tailings tonnes.

Capex:

Capex of US$13.8 million for the Period (H1 FY 2018: US$34.5 million) was in line with guidance and the progression of the expansion project and associated underground development.

Cullinan - South Africa

Production:

Cullinan's ROM diamond production increased 30% to 785,444 carats (H1 FY 2018: 602,594 carats), due to a 12% increase in ROM treated to 1.996Mt (H1 FY 2018: 1.783Mt) as well as an increase in the ROM grade of 16% to 39.3cpht (H1 FY 2018: 33.8cpht). This increase in volume and grade is due to the continued ramp up of production from the C-Cut phase 1 and a reduction in ore mined from old areas with higher waste dilution. During the Period, production from the C-Cut phase 1 was largely concentrated in the south-western part of the footprint and therefore not representative of expected production associated with the full extent of the C-Cut phase 1 block cave. The third and final underground crusher was commissioned during December, delivering increased operational flexibility as mining progresses across the footprint of the cave.

The new Cullinan plant is fully operational and is meeting design parameters while normal optimisation is ongoing. Cullinan's total production increased by 37% to 832,026 carats (H1 FY 2018: 607,235 carats) with increased ROM production supplemented by the ramp-up of tailings production.

Cullinan's average value per carat of US$96 was 31% lower than that achieved in H1 FY 2018 (US$140) due to a weaker product mix combined with a softer pricing environment for lower value stones.

Sales:

Cullinan's revenue increased by 8% to US$66.2 million (H1 FY 2018: US$61.4 million), due to higher sales volumes and an increase in underground tonnes mined.

Costs:

The on-mine unit cash cost per total tonne treated was down 13% to ZAR224 (H1 FY 2018: ZAR256), mainly due to the increase in both ROM tonnes and lower cost tailings tonnes treated.

Capex:

Capex of US$22.8 million (H1 FY 2018: US$40.5 million) was in line with guidance.

Koffiefontein - South Africa

Production:

Koffiefontein's ROM production remained flat at 25,275 carats (H1 FY 2018: 25,292 carats). Production was negatively impacted during the Period due to community unrest relating to municipal service delivery, operational challenges experienced relating to plant availability and a lower than planned grade recovered. As mentioned in the Q1 FY 2019 update, community-related protest actions against local government structures commenced during September. The situation worsened and severely disrupted operations at Koffiefontein throughout Q2 FY 2019 due to high employee absenteeism as a result of the protest actions. In spite of these challenges, ROM tonnes mined increased 40% to 434Kt (H1 FY 2018: 311Kt) and ROM tonnes treated increased 30% to 377Kt (H1 FY 2018: 289Kt). The differential between hoisted and treated ROM tonnes was stockpiled on the surface stockpile, resulting in a ca. 90Kt ROM stockpile available for treatment. The recovered grade was negatively impacted by the stockpiling of partially treated coarse ROM material as well as delayed production from higher grade areas on 60L and 58L West given the impact of the protest actions on the operation. Since the start of January 2019, additional crushing capacity has been introduced to the plant, employee attendance has normalised and monthly production is expected to ramp up over January to levels observed in Q1 FY 2019.

Sales:

Koffiefontein's revenue decreased 5% to US$10.5 million (H1 FY 2018: US$11.0 million), due lower prices achieved during the Period.

Costs:

Unit cash cost per total tonne treated at Koffiefontein was ZAR585 (H1 FY 2018: ZAR634), above guidance due to lower than planned production as result of above mentioned operational challenges.

Capex:

Capex decreased 59% to US$3.2 million (H1 FY 2018: US$7.8 million) and remained primarily focused on underground development associated with the new SLC.

Williamson - Tanzania

¹Negatively impacted by the blocked parcel of 71,655 carats.

Production:

Williamson's diamond production increased 23% to 214,421 carats (H1 FY 2018: 174,834 carats), mainly due to an 18% increase in the ROM grade recovered as well as a 4% increase in tonnes treated to 2.7Mt (H1 FY 2018: 2.6Mt).

Sales:

Williamson's revenue increased 135% to US$43.5 million (H1 FY 2018 US$18.5 million), due to Williamson's blocked parcel, with a Government of Tanzania provisional valuation of US$14.8 million not being sold in the corresponding Period.

The Company remains in discussions with the Government of Tanzania and local advisers in relation to the overdue VAT receivables and the blocked parcel.

Costs:

The on-mine unit cash cost per total tonne treated was US$11.6 (H1 FY 2018: US$10), which remains in line with guidance.

Capex:

Capex of US$3.2 million primarily related to waste stripping. All capex is funded from the mine's own cashflow and may be adjusted when issues relating to the blocked parcel and VAT are resolved.

EXPLORATION

As Petra continued to focus on the ramp up of its development programmes at its producing operations, only limited budget was committed to exploration in H1 FY 2019 of US$0.2 million (this was also the case in H1 FY 2018, with US$0.4 million spent). All exploration programmes are currently under review.

CORPORATE AND GOVERNANCE

The Nomination Committee is in the final year of its three-year Succession Plan. During the Period, the Company announced the appointment of two new Independent Non-Executive Directors, Mrs. Varda Shine and Mr. Bernard Pryor to Petra's Board effective 1 January 2019. As previously announced, the Nomination Committee expects to make further changes to the composition of the Board during this calendar year.

The Company also announced today the appointment of a new Chief Executive Officer. For more information, refer to announcement titled "Appointment of Chief Executive Officer" dated 18 February 2019.

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 2018 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.

Product mix variability

Some level of variability in terms of product mix is associated with complex orebodies like Cullinan, where the recovery of high value stones varies on a period-to-period basis. Cullinan continued to experience variability in its product mix, with the average value per carat for H1 FY 2019 being below expectations due to a notable shortfall in the recovery of large, high value diamonds for which the mine is known; this is attributable to mining not yet delivering a representative mix of ore across the footprint of the new C-Cut Phase 1 block cave. Variability in overall diamond prices realised as a result of this product mix volatility may have an impact on the Group's financial performance.

Financing and liquidity

The Group closely monitors and manages its liquidity risk. Cash forecasts are regularly produced and sensitivities run for different scenarios including, but not limited to, changes in rough diamond prices, product mix and foreign exchange rates, different production rates from the Group's producing assets and delays to development projects.

The Group's forecast, taking into account the risks described above and the covenants as discussed in the 'Covenant measurements attached to banking facilities' section of the Financial Review, show that the Group will be able to operate within its current debt facilities and have sufficient liquidity headroom for the remainder of the Group's Capex programme for at least the next twelve months, although headroom remains sensitive to diamond prices, foreign exchange rates and production. There remains a risk, given these factors and the impact on operating cashflows, that the Group's liquidity position could deteriorate and the resulting lack of adequate available cashflows, potential breach of covenants and restricted access to its debt facilities could impact development work and impact the operations.

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, including Tanzanian Shillings, GBP and Euro. Fluctuations in these currencies can have an impact on the Group's performance, albeit less significant than the impact of fluctuations in the ZAR/USD exchange rate.

In order to mitigate currency risk, the Group continually monitors the movement of the Rand against the US Dollar, the maturity dates and the level of the hedge book and takes expert advice from its bankers in this regard. It is the Group's policy to hedge, on a short term basis, linked to the tender calendar, a portion of US Dollar sales revenue when weakness in the Rand deems it appropriate.

Country and political risk

Petra's operations are predominantly based in South Africa, with lesser exposure to Tanzania and Botswana. Emerging market economies could be subject to greater risks, including legal, regulatory, taxation, economic, and political risks, and are potentially subject to rapid change.

Tanzania has introduced a number of legislative changes to the framework governing the natural resources sector, which have increased regulatory uncertainty. These changes are set out in the Company's 2018 Annual Report.

In addition, there is no certainty with regards to the outcome for the blocked Williamson parcel, which remains in the custody of the Government of the United Republic of Tanzania.

Johan Dippenaar

Chief Executive Officer

18 February 2019

Notes:

1. The following exchange rates have been used for this announcement:

a. closing rate as at 31 December 2018 US$1:ZAR14.35 (31 December 2018 US$1:ZAR12.38)

b. average rate H1 FY 2019 US$1:ZAR14.19 (H1 FY2018 US$1:ZAR13.40)

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. LTIFR: lost time injury frequency rate

e. Kt: thousand tonnes

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

j. SLC: sub-level cave, a variation of block caving

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 2018

1 Comparative results have been restated to reflect the results of the KEM JV within the loss on discontinued operations (net of tax) as per the requirements of IFRS 5, refer to Note 16. The Helam prior period results are insignificant and as such have not been restated.

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2018

¹ These items will be reclassified to the consolidated income statement if specific future conditions are met.

² During the Period, the Company disposed of the KEM JV and Helam operations and recognised a foreign currency translation gain of US$1.5 million which has been recycled through the consolidated income statement as part of loss on discontinued operations (refer to note 16).

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2018

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF CASHFLOWS

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2018

The cashflows specific to the discontinued operation (net of tax) are included in the amounts above and are disclosed in Note 16.

¹ Cash and cash equivalents in the Consolidated Statement of Financial Position includes restricted cash of US$13.9 million (30 June 2018: US$14.4 million and 31 December 2017: US$14.4 million) and unrestricted cash of US$76.8 million (30 June 2018: US$221.6 million and 31 December 2017: US$104.7 million) and excludes unrestricted cash attributable to KEM JV of US$nil (30 June 2018: US$1.4 million and 31 December 2017: US$nil).

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2018

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2018

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2018

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2018

1. GENERAL INFORMATION

Petra Diamonds Limited (the "Company"), a limited liability company listed on the Main Market of the London Stock Exchange, is registered in Bermuda with its Group management office domiciled in the United Kingdom. The Condensed Consolidated Interim Financial Statements of the Company for the six month period ended 31 December 2018 comprise the Company and its subsidiaries, joint operations and associates (together referred to as the "Group").

2. ACCOUNTING POLICIES

The interim results, which are unaudited, have been prepared in accordance with the requirements of International Accounting Standard 34. This condensed interim report does not include all the notes of the type normally included in an annual financial report. This condensed report is to be read in conjunction with the Annual Report for the year ended 30 June 2018, and any public announcements made by the Group during the interim reporting period. The annual financial report for the year ended 30 June 2018 was prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS's") and the accounting policies applied in this condensed interim report are consistent with the polices applied in the annual financial report for the year ended 30 June 2018 unless otherwise noted.

The company has adopted IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Customers' in the Period, following the standards becoming effective for accounting periods commencing on or after 1 January 2018.

IFRS 9 Financial Instruments

IFRS 9 'Financial instruments' addresses the classification and measurement of financial assets and financial liabilities and replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income (OCI) and fair value through profit or loss. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. There is now a new expected credit loss model that replaces the incurred loss impairment model used in IAS 39. The adoption of IFRS 9 did not result in any material change to the consolidated results of the group from the beginning of the earliest period presented. Following an assessment of the consolidated financial assets no changes to classification of those financial assets was required. The group has applied the expected credit loss impairment model to its financial assets, focused in particular on its non current BEE receivables and no material credit losses are considered to apply. As per note 12, the Group provided a guarantee to the BEE Lenders over the repayment of loans advanced to the Group's BEE Partners. The BEE Partners will settle their loan obligations with the BEE Lenders from their share of future operational cashflows, either through repayment of the amounts owing to the BEE Partners by Petra or through recoverable advances provided by Petra from Group treasury. The adoption of IFRS 9 has not had any material impact on the accounting treatment of the BEE guarantee. The group's VAT receivables are excluded from the scope of IFRS 9.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 introduced a single framework for revenue recognition and clarify principles of revenue recognition. This standard modifies the determination of when to recognise revenue and how much revenue to recognise. The core principle is that an entity recognises revenue to depict the transfer of promised goods and services to the customer of an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption of IFRS 15 did not result in any material change to the group's revenue recognition. The Group recognises revenue to depict the transfer of promised diamond sales to customers in an amount that reflects the consideration to which the Group expects to be entitled in exchange for the diamond sales. Diamond sales are made through a competitive tender process.