Petra Diamonds Regulatory News (PDL)

Petra Diamonds Limited

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

Interim results for the six months to 31 December 2015

Petra Diamonds Limited announces its interim results (unaudited) for the six months to 31 December 2015 ("the Period" or "H1 FY 2016" or "H1").

HIGHLIGHTS

Financial

· Revenue down 28% to US$154.0 million (H1 FY 2015: US$214.8 million); revenue excluding Exceptional Diamonds down 18% to US$144.0 million (H1 FY 2015: US$176.1 million).

· Adjusted EBITDA3 down 43% to US$48.5 million (H1 FY 2015: US$84.9 million).

· Adjusted net profit after tax4 down 85% to US$6.3 million (H1 FY 2015: US$42.8 million).

· Net loss after tax: US$2.2 million (H1 FY 2015: US$39.1 million profit).

· Operating cashflow US$45.6 million (H1 FY 2015: US$104.4 million).

· Adjusted EPS8: 0.92 US$ cents (H1 FY 2015: 6.66 US$ cents).

· Basic loss per share: 0.72 US$ cents (H1 FY 2015: EPS of 5.94 US$ cents).

· Net debt of US$323.9 million (H1 FY 2015: US$45.8 million) in line with expectations and aligned with planned increased capital spend.

Operations

· Production up 2% to 1,629,403 carats (H1 FY 2015: 1,601,069 carats).

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

· Capex of US$151.3 million (H1 FY 2015: US$125.2 million) including capitalised borrowing costs, in accordance with the roll out of the Group's expansion programmes, delivery of which remains on track. Capex remains fully funded from treasury, bank facilities and cashflows.

· Safety: Group LTIFR of 0.37 (H1 FY 2015: 0.28); continued strong focus on this area.

Outlook

· On track for production guidance of 3.3 - 3.4 Mcts for FY 2016 and ca. 5 Mcts for FY 2019. Sales are also weighted to H2 due to the seasonal timing of Petra tenders.

· Post Period end, the Company has experienced stable diamond market conditions with firm prices achieved at the first tender of H2.

· Acquisition of a 49.9% stake in Kimberley Mines completed post Period end. Petra's production guidance excludes input from these operations; the Company will provide an update after the initial handover period.

Johan Dippenaar, CEO of Petra, commented:

"Operationally, the Company performed well, with both production and our expansion programmes progressing according to plan and in line with our full year targets.

"While our financial results have been impacted by the lower diamond prices achieved in comparison to the prior period, our operations maintained a healthy profit margin from mining activities of 36% due to the robust economics of our mines, as well as the favourable effect of the weaker ZAR on our cost base.

"Petra's production and sales are weighted to H2 and it is encouraging that we are currently experiencing stable diamond market conditions."

Analyst presentation and webcast

A presentation for analysts will be held at 9:30am GMT on 22 February 2016 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.investis-live.com/petra-diamonds/56aa09bde491730c007b2bc9/ir-16.

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 368 0649

From South Africa (toll free): 0800 999 282

From the rest of the world: +44 20 3059 8125

Participant passcode: Petra Diamonds

A recording of the webcast will be available from 1:00pm GMT on 22 February 2016 on the website and on the link above.

Second Call - 4:00pm GMT / 11:00am EST

This will be a Q&A call only to cater for 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): 1 866 928 7517

From the rest of the world: +44 203 428 1542

From the UK (toll free): 0808 237 0040

Participant passcode: 64688041#

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, adjusted operating cashflow, an adjusted US$ loan note and net debt. As these are non-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. 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, tax expense and net unrealised foreign exchange gains and losses.

4. Adjusted net profit after tax and adjusted basic earnings per share are net profit after tax and earnings per share stated before net unrealised foreign exchange gains. 

5. The US$ loan note represents the gross capital of US$300 million and accrued interest of US$2.1 million (30 June 2015: US$3.3 million and 31 December 2014: US$nil), excluding transaction costs.

6. Net debt is the US$ loan notes and bank loans and borrowings net of cash at bank.

7. 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:

Petra Diamonds, London Telephone: +44 20 7494 8203

Cathy Malins cathy.malins@petradiamonds.com

Cornelia Grant cornelia.grant@petradiamonds.com

Buchanan Telephone: +44 20 7466 5000

(PR Adviser)

Bobby Morse bobbym@buchanan.uk.com

Anna Michniewicz annam@buchanan.uk.com

RBC Capital Markets Telephone: +44 20 7653 4000

(Joint Broker)

Matthew Coakes matthew.coakes@rbccm.com

Jonathan Hardy jonathan.hardy@rbccm.com

Barclays Telephone: +44 20 7623 2323

(Joint Broker)

Bertie Whitehead bertie.whitehead@barclays.com

Philip Drake philip.e.drake@barclays.com

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 six producing operations: four underground mines in South Africa (Finsch, Cullinan, Koffiefontein and Kimberley Underground), extensive tailings operations in Kimberley (via its interest in the Kimberley Mines) and one open pit mine in Tanzania (Williamson). It also maintains an exploration programme in Botswana.

Petra has a core objective to steadily increase annual production to ca. 5 million carats by FY 2019. The Group has a significant resource base of ca. 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 constituent of the FTSE4Good Index. For more information, visit the Company's website at www.petradiamonds.com. 

CEO'S REVIEW

Petra has performed well operationally for the Period, exceeding its H1 target of 1.5 million carats, with a 2% increase in production on H1 FY 2015 to 1,629,403 carats. The Company remains firmly on track to meet full year guidance of 3.3 - 3.4 Mcts (excluding production from the newly acquired Kimberley Mines) and the longer-term target of ca. 5 Mcts by FY 2019.

The Company's financial results were impacted by the weaker diamond market for the Period, with pricing achieved by Petra being down ca. 9% on a like for like basis in H1 and having fallen ca. 20% over the last 18 months, coupled with unrealised foreign exchange losses (mark to market valuation of forward exchange contracts entered into to cover a portion of US Dollar proceeds from the Company's South African tenders). However the impact of the above has been mitigated by the significant weakening of the South African Rand (lower US Dollar denominated costs when translating the South African operations' ZAR denominated costs at weaker ZAR / USD exchange rates), as well as our focus on efficiencies and cost control. The Company therefore still recorded a profit margin from mining activities of 36% (H1 FY 2015: 43%), despite the challenging market conditions.

Petra's work to access undiluted ore by bringing into production new mining areas at its underground mines has progressed well, with all expansion projects continuing in line with expectations. Undiluted ore will therefore start to make a meaningful contribution to the Group's production profile from H2 FY 2016 onwards, leading to substantial improvements in grades, product mix and therefore operating margins over the next two to three years. An initial improvement in grade (particularly at Cullinan) has already been noted, with the ROM grade further improving to 27.6 cpht in Q2, following the low of 20.9 cpht achieved in Q3 FY 2015.

Cullinan is a particularly special mine which continues to produce some of the most famous and spectacular diamonds ever seen, including the Blue Moon of Josephine. This exceptional 12 carat blue diamond with perfect colour and clarity was sold at auction by Sotheby's in November 2015 and achieved US$48.5 million, a record value for a diamond and a record price per carat (+US$4 million). Petra did not have an interest in the polished stone, having achieved US$25.6 million for the sale of the rough diamond in February 2014, but this record price affirmed Cullinan's position as one of the world's most celebrated diamond mines.

Optimising processing at Cullinan in order to best capture its high value production is one of our core objectives and a reason behind the strategy to construct a modern processing plant at the mine. This project is progressing well, being on time and budget, and we are excited about what the future holds for this iconic mine.

In December 2015, Petra announced that it would be acquiring a 49.9% interest in the Kimberley Mines assets, with its partner Ekapa Mining (Pty) Ltd ("Ekapa Mining"), an established Kimberley-based diamond tailings producer, owning the remaining 50.1%. This transaction, which was completed on 18 January 2016, introduces a number of producing tailings deposits in the Kimberley area, as well as a 6 Mtpa 'state-of-the-art' processing plant, capable of processing ore from both ROM and tailings sources. These assets are a great fit for the Group, given our existing Kimberley Underground operations in the area, and the transaction demonstrates our commitment to ensuring a sustainable future for the diamond mining industry in Kimberley, to the benefit of the Kimberley Mines workforce and local community.

In terms of safety, we achieved an LTIFR of 0.37 in H1 FY 2016, which was a little above the 0.28 achieved in H1 FY 2015. We continuously strive to improve our safety performance throughout the Group and this vital area remains at the forefront of everything we do.

DIAMOND MARKET

The rough diamond market continued to be impacted by excess polished inventory in the pipeline, liquidity issues in the midstream, the strong US Dollar and a slowdown in retail demand from China.

A number of steps have been taken to address the market challenges, including significantly reduced supply from the major diamond producers (via production cuts and decreased sales volumes), reduced rough diamond pricing, and increased consumer marketing (both branded and generic diamond marketing). Initial data from the key Christmas sales period shows encouragingly solid results from North America (which accounts for +40% of the market).

Diamond Pricing

During H1, pricing was down ca. 9% at Petra's first tender of the financial year in October 2015, however it then stabilised at the second tender, which closed in early December 2015. Since Period end, the Company has held one further tender which closed in early February 2016, with firm prices achieved and all parcels sold. A further three tenders will be held during the remainder of H2.

The table below summarises diamond pricing achieved in H1 FY 2016 set against the last financial year. It also includes a column demonstrating the ranges of values achieved from tender to tender in FY 2015, thereby demonstrating the variability across the full year.

Notes:

1. Excluding Exceptional Diamonds.

2. Excluding Exceptional Diamonds, the average value per carat was US$119.

3. Excluding Exceptional Diamonds, the average value per carat was US$241.

FINANCIAL RESULTS

Revenue

Revenue for H1 FY 2016 was down 28% to US$154.0 million (H1 FY 2015: US$214.8 million). Exceptional Diamonds sold during the Period yielded US$10.0 million (H1 FY 2015 US$38.7 million), resulting in revenues excluding these stones of US$144.0 million, down 18% on the prior period (H1 FY 2015: US$176.1 million).

Carats sold were down 7% to 1,303,051 carats (H1 FY 2015: 1,401,575) and were lower than carats produced of 1,629,403 carats (H1 FY 2015: 1,601,069 carats) due to the seasonal timing of Petra's tenders; Petra held two tenders in H1 and will hold four tenders in H2. The cut-off date for production sold in the second tender of FY 2016 was the end of October 2015 and therefore carats produced after this date were offered for sale in the Company's first tender of H2 FY 2016.

Mining and processing costs

The mining and processing costs for H1 FY 2016 were, as in past periods, comprised of 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 2016 remained in line with expectations, despite the ongoing inflationary pressures. On-mine cash costs decreased by 7.3%, due to:

· the continued ramp-up of more costly underground production in line with the Group's strategy (1.2% increase); and

· inflationary increases, including the impact of electricity and labour costs (7.0% increase);

positively offset by:

· the effect of translating South African operations' ZAR denominated costs at weaker ZAR/USD exchange rates (15.5% decrease).

Unit costs on a mine by mine basis are covered in the 'Operational Review' to follow.

Profit from mining activities

Profit from mining activities was down 41% to US$55.1 million (H1 FY 2015: US$92.9 million), due to lower turnover compared to the prior period. The profit margin from mining activities reduced to 36% (H1 FY 2015: 43%).

Exploration

Petra incurred US$1.9 million of exploration expenditure during the Period (H1 FY 2015: US$2.4 million). Refer to the 'Exploration' section below for further information.

Corporate overhead - General and Administration

Corporate overhead of US$4.7 million for the Period (H1 FY 2015: US$5.6 million) remained well controlled and also benefited 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 43% to US$48.5 million (H1 FY 2015: US$84.9 million), due to the reduction in turnover.

Depreciation

Depreciation for the Period was US$24.2 million (H1 FY 2015: US$19.6 million). Included within depreciation is an amount of US$5.2 million, which has been expensed for the first time, and is due to the accelerated depreciation on the old Cullinan plant which will be decommissioned in FY 2017. A further depreciation charge of up to US$13.4 million in respect of the accelerated depreciation on the remaining old Cullinan plant being scrapped will be expensed in H2 FY 2016 and FY 2017 before the new plant is commissioned, and has been previously guided for within Petra's analyst guidance.

Net financial expense

Net financial expense of US$21.8 million (H1 FY 2015: US$3.9 million) is mainly comprised of:

· interest received on bank deposits of US$0.2 million;

offset by:

· unrealised foreign exchange losses of US$8.5 million, representing (i) unrealised losses on forward exchange contracts due to the significant weakening in the ZAR/USD exchange rate in December relative to the exchange rate embedded in certain of the Group's hedges that are in place for H2 tender sales; these unrealised losses may, depending on movements in the Rand, be partially realised in H2, and at the same time the Group will record the benefit of higher Rand receipts from USD sales and lower USD denominated costs for the period; and (ii) the net effect of foreign currency retranslation of cross border loans considered to be repayable in the foreseeable future;

· net interest payable to the BEE partners' loans of US$5.0 million;

· net realised foreign exchange losses of US$4.6 million on the settlement of inter-company loans and forward exchange contracts;

· a charge for the unwinding of the present value adjustment for Group rehabilitation costs of US$2.4 million; and

· interest on the Group's debt and working capital facilities of US$1.5 million (stated after the capitalisation of interest of US$11.5 million associated with the funding of assets under development).

Tax charge

The tax charge of US$2.3 million (H1 FY 2015: US$19.5 million) arises due to deferred tax (net of charges and credits), reflecting the utilisation of certain capital allowances during the Period.

Net Loss

A net loss after tax of US$2.2 million was recorded for the Period (H1 FY 2015: US$39.1 million profit).

Loss per share

A basic loss per share of 0.72 US$ cents was recorded (H1 FY 2015: earnings of 5.94 US$ cents).

Dividend

The Company paid its maiden dividend of 3.0 US$ cents per share in respect of the year ended 30 June 2015 on 7 December 2015.

Operating Cashflow

Operating cashflow for the Period was US$45.6 million (H1 FY 2015: US$104.2 million). 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 an outflow of US$5.1 million (H1 FY 2015: US$50.4 million inflow). The reduction in operating cashflow and adjusted operating cashflow is due to the lower turnover, and therefore lower EBITDA for the Period as reported above, being mainly due to lower diamond prices. The adjustment for the cashflow impact on trade receivables (diamond debtors) as at 30 June 2015 was US$50.7 million, with all diamond debtors being received shortly after 30 June 2015.

Even though operating cashflow and adjusted operating cashflow were lower than previous periods, they were in line with management expectations, given the lower diamond prices achieved. As previously noted, the Company's sales and revenue are weighted to H2 which is therefore expected to lead to higher levels of operating cashflow in H2.

Cash, diamond inventories, diamond debtors and net debt

Key financial disclosures are set out in the table below. The Company's bank facilities undrawn and available of US$177.1 million, combined with cash at bank and diamond inventories at 31 December 2015 of US$99.5 million and cashflow from operations, give the Group a comfortable headroom for the remainder of the higher Capex spend period to the end of FY 2017.

Cash

As at 31 December 2015 the Group had cash at bank of US$42.1 million (H1 FY 2015: US$129.6 million) and of these cash balances, US$30.7 million was held as unrestricted cash (H1 FY 2015: US$117.7 million), US$10.2 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 2015: US$10.3 million) and US$1.2 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 2015: US$1.6 million).

Diamond inventories

As at 31 December 2015, the Group had diamond inventories of US$57.4 million (H1 FY 2015: US$43.6 million). 

Loans and Borrowings

Bank loans and borrowings at 31 December 2015 were US$63.9 million (H1 FY 2015: US$175.4 million). Bank debt facilities undrawn and available to the Group at 31 December 2015 were US$177.1 million (H1 FY 2015: US$45.2 million).

Net debt at 31 December 2015 was US$323.9 million (H1 FY 2015: US$45.8 million). Net debt has increased from 30 June 2015 by US$152.2 million largely due to Capex spend of US$151.3 million, in line with expectations.

Banking Facilities and Covenant Measurements

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 diamond prices, exchange rates and expected production from the Group's mines, including total carats and mix. The Group's forecasts show that Petra has sufficient banking facilities to meet its capital development requirements, with minimum headroom forecast as ca. ZAR1,400 million (ca. US$90 million) in June 2016.

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/. Mainly due to the weak trading results in H2 FY 2015, the two covenant tests related to consolidated EBITDA for the 12 month period to, and as at, 31 December 2015 would have been breached. In November 2015, Petra's main lenders, which included all of the drawn down facilities at Period end, therefore agreed to waive the measurement of these two covenant tests before Period end. The lenders also confirmed at the time that they remain fully supportive of Petra and its plans to achieve its stated objective of being a ca. 5 million carats per annum diamond producer by FY 2019.

The next covenant measurement will be for the 12 month period to, and as at, 30 June 2016 and further waivers, as were given in respect of the 31 December 2015 measurements, may be required for this measurement. Petra is working with its lenders to review its current debt facilities and associated covenants and will update the market in this regard as and when appropriate in H2 FY 2016.

The bank loans from their bankers to Petra's BEE partners of US$79.5 million (ZAR 1,229 million) (including accrued interest), for which Petra stands as guarantor, are subject to the same covenants as the Petra Group facilities and therefore the consolidated EBITDA waivers were also given in regard to the 31 December 2015 measurements by the lenders in November 2015.

BEE loans receivable and payable

BEE loans receivable of US$26.2 million (H1 FY 2015: US$29.4 million) relate to the acquisition and financing at Koffiefontein and Kimberley Underground mines by Petra on behalf of its BEE partners.

The BEE loans payable of US$77.3 million (H1 FY 2015: US$94.2 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, Koffiefontein and Kimberley Underground 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$35.8 million (comprising US$7.2 million trade creditors, US$15.8 million employee related accruals and US$12.8 million other payables) (H1 FY 2015: US$62.6 million), the remaining liabilities on the balance sheet mainly comprise provisions for rehabilitation liabilities, post retirement employee related provisions, deferred tax and a fair value derivative liability of US$32.7 million representing the unrealised mark-to-market loss on FX hedging contracts currently in place for the H2 tender cycle.

Capex

H1 FY 2016 Capex was in line with the Group's overall budgets for FY 2016 and the roll out of the Group's expansion programmes.

Capex for the Period was US$151.3 million (H1 FY 2015: US$125.2 million), split as to US$127.0 million on expansion Capex (H1 FY 2015: US$93.8 million), US$12.8 million (H1 FY 2015: US$24.8 million) on sustaining Capex and US$11.5 million (H1 FY 2015: US$6.6 million) of capitalised borrowing costs related to Capex funding, which is included in the applicable mine by mine tables in the 'Operational Review' section. The increase is mainly due to the construction of the new Cullinan plant. Capex is expected to reach its peak in FY 2016 as the Group continues to progress its expansion programmes.

Notes:

1. Capex for the Period includes US$11.5 million (H1 FY 2015: US$6.6 million) of capitalised borrowing costs, which is also included in the applicable mine by mine tables above.

2. Petra's annual Capex guidance is cash based and excludes 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 for the duration of the project phase and not expensed through the income statement. 

3. The Group (Petra internal projects and Other Corporate) incurs capital spend on behalf of the operations and although this 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 work completed is invoiced to the relevant operation. Group Capex includes US$0.8 million for the Period (H1 FY 2015: US$0.1 million), which was incurred and invoiced by the Group's internal projects facility and Corporate division. Therefore the mine by mine tables plus the internal projects and other corporate Capex will add together to make the Capex total in the relevant sections above.

OperationAL REVIEW

Combined operations:

Notes:

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

The Company achieved production growth of 2% due to increases at Finsch, Koffiefontein and Kimberley Underground, offset by planned lower levels of production at Cullinan and Williamson.

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 2016, with overall carat production increasing by 8% to 1,095,078 carats (H1 FY 2015: 1,013,117 carats), driven by continued improvements in the ROM tonnes and grade achieved, with the Bulk Sampling Plant ("BSP") also providing additional processing capacity.

Treatment of the Pre 79 Tailings was in line with expectations, with targets of 2.4 Mt at a grade of 27 cpht for FY 2016 and 1.4 Mt at a grade of 24 cpht for FY 2017.

Sales:

Despite the increase in production, sales were down 3% to US$75.2 million (H1 FY 2015: US$77.3 million), with the average value per carat achieved at Finsch of US$82 being 4% below prices achieved in H1 FY 2015 due to the weaker diamond market.

Costs:

The on-mine unit cash cost per total tonne treated was ZAR182, an increase of 14% from H1 FY 2015 (ZAR160) mainly due to the start-up of production through the BSP plant (commissioned late FY 2015) which added ZAR8 per tonne treated, coupled with inflationary cost increases (labour and electricity). Excluding the cost impact of the BSP plant, the unit cost was in line with guidance of ZAR173 per tonne treated.

Capex:

Capex of US$32.6 million for the Period (H1 FY 2015: US$39.5 million) was in line with guidance and the progression of the expansion project and associated underground development.

Development Programme:

Mining is currently transitioning from the block cave on the 630 metre level ("mL") to an SLC over four levels from 700mL to 780mL. The development of the SLC continues to progress in line with expectations.

As the mine's underground production profile gradually changes from diluted to undiluted ore, the ROM grade is expected to increase to ca. 58 cpht from FY 2017 onwards.

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 2015 was US$119 per carat.

Production:

Cullinan's diamond production decreased 18% to 322,366 carats (H1 FY 2015: 391,398 carats), in line with the Company's guidance that it will produce lower tonnages at the mine in FY 2016 in order to focus on grade control. This approach has had a positive impact, with the ROM grade further improving to 27.6 cpht in Q2, following the 23.6 cpht achieved in Q1 FY 2016 (H1 2016: overall grade of 25.7 cpht).

During the Period, the Company decided to use tailings processing capacity to treat ROM material to assist in addressing previously reported ROM grade challenges. Tailings treatment in H2 is expected to be ca. 300,000 tonnes and will remain at this level (ca. 600,000 tonnes per annum) until the new plant is operational (expected by June 2017).

Sales:

Cullinan's revenue decreased by US$52.7 million compared to H1 FY 2015 as a result of an absence of Exceptional Diamonds (US$38.7 million); lower sales volumes (US$9.3 million) and the weaker diamond market (US$4.7 million). The average value per carat of US$110 was lower than guidance of US$126 due to the weaker diamond market and a slightly weaker product mix. 

Costs:

The decision to significantly cut-back on tailings throughput adversely impacted the unit cash cost per total tonne treated, resulting in a unit cost of ZAR254 per tonne. The cost per tonne also exceeded guidance of ZAR173 due to the change in production approach noted above. Absolute costs in ZAR terms remained in line with expectations.

Capex:

Capex of US$84.5 million (H1 FY 2015: US$54.0 million) was in line with expectations, with the significant increase relating to construction of the new plant.

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 above 2 Mcts by FY 2019.

The underground development at Cullinan continued to progress in line with expectations, with the C-Cut Phase 1 waste development yielding a total of 971 metres (H1 FY 2015: 2,361 metres), raiseboring delivering 387 metres (H1 FY 2015: 389 metres) and kimberlite development delivering 1,354 metres (H1 FY 2015: 967 metres). The shaft deepening is on track to be completed and commissioned during H1 FY 2017.

New Cullinan Plant

The construction of the new Cullinan plant is progressing in line with expectations. During H1, the on-site project teams focused on the completion of bulk earthworks and the commencement of civil and structural construction activities. Engineering design, procurement and off-site fabrication are all on track to meet the end of FY 2017 ramp-up.

Koffiefontein - South Africa

Production:

Production at Koffiefontein increased by 61% to 31,760 carats (H1 FY 2015: 19,676 carats), further to the significant ramp up of the new SLC production area underground, with ROM tonnes treated up 119% to 289,217 tonnes (H1 FY 2015: 132,202 tonnes) and the achieved grade up 18% to 8.6 cpht (H1 FY 2015: 7.3 cpht).

Sales:

Koffiefontein's revenue increased by 39% due to higher sales volumes and an increase in the average value per carat to US$459 (FY 2015: US$389). The average value achieved was lower than guidance of US$570 due to the weaker diamond market and the slower than planned ramp up of tonnages of higher value underground ROM material.

Costs:

The marked increase in higher value, higher-cost, underground production resulted in a 21% increase in the unit cash cost per total tonne treated to ZAR317 (H1 FY 2015: ZAR263). Unforeseen break-downs and associated maintenance costs contributed to the increase in unit cost.

Capex:

Capex for the Period of US$15.3 million (H1 FY 2015: US$13.5 million) remained primarily focused on underground development associated with the new SLC.

Development Programme:

As at Finsch, the SLC mining method will be used at Koffiefontein, before putting in place a new block cave. The SLC will be mined over three levels from 560 mL to 600 mL. Production has now commenced on the 560 mL of the SLC, while the continued development towards the 580 mL will see Koffiefontein achieving planned levels of ROM production.

As noted in Petra's Q1 Trading Update, Koffiefontein's underground production did not ramp up as planned in H1 (ROM throughput of 0.29 Mt), with H2 ROM production expected to increase to ca. 0.4 Mt resulting in full year production of ca. 0.69Mt.

Kimberley Underground - South Africa

Production:

Kimberley Underground's production increased 17% to 84,358 carats (H1 FY 2015: 72,012 carats) due to the increased ROM grade of 15.8 cpht (H1 FY 2015: 12.4 cpht) and the continued treatment of tailings resources to utilise available plant capacity.

Sales:

The average value per carat of US$254 was significantly below guidance of US$327 due to the weaker market, exacerbated by the inclusion of lower quality tailings to the production profile.

Costs:

The on-mine unit cash cost per total tonne treated of ZAR253 remained flat on H1 FY 2015 (ZAR251), as inflationary increases were off-set by additional throughput, and is in line with guidance of ZAR255.

Capex:

Capex for the Period increased to US$7.8 million (H1 FY 2015: US$5.9 million) mainly as a result of the ramp-up of the development programme.

Williamson - Tanzania

Production:

Williamson's diamond production decreased 3% to 95,841 carats (H1 FY 2015: 98,949 carats), following planned downtime to effect plant modifications during the Period.

Sales:

The average value of US$367 was higher than management guidance of US$303 further to the sale of the 23.16 carat pink stone from Williamson for US$10.05 million, as reported on 9 December 2015 (with Petra retaining a 20% interest in the sales proceeds of the polished yield of this stone). Excluding Exceptional Diamonds, the average value per carat was US$241.

Costs:

The on-mine unit cash cost per total tonne treated was US$11 (H1 FY 2015: US$12), which remains in line with guidance.

Development Plan:

Petra's expansion plan at Williamson will see tonnage throughput ramp up to ca. 5 Mtpa from FY 2018, which, at a grade of ca. 7.0 cpht, is expected to deliver 350,000 ctpa.

The plant enhancements include the introduction of an additional crusher circuit and two autogenous mills. Construction commenced in FY 2015, commissioning of the crusher was completed in Q1 FY 2016 and installation and commissioning of the two autogenous mills is planned for H1 FY 2017.

EXPLORATION

Petra's focus at present remains the evaluation of the KX36 kimberlite discovery and the search for other kimberlites in its current prospecting licences.

KX36

Following the completion of a ca. 800 tonnes large diameter drilling ("LDD") campaign in FY 2013, a narrow diameter drilling ("NDD") programme was carried out to improve delineation of the KX36 pipe and to provide additional geological and geotechnical information.

Petra then commenced a second phase of LDD bulk sampling in Q2 FY 2015 with the aim of obtaining ca. 720 carats for a diamond parcel of ca. 1,000 carats. The on-site treatment of bulk samples (ca. 1,400 tonnes), which commenced early in Q3 FY 2015, was completed by the end of H1 FY 2016, rendering a total of ca. 830 carats for this phase, at an average grade of 40.3 cpht (at a -1mm bottom cut-off).

Towards the end of the Period, a small third phase of bulk sampling was embarked upon; crushing and processing of ca. 24 tonnes of previously obtained NDD core rendered an additional ca. 11.7 carats at an average grade of 48 cpht (at a -1mm bottom cut-off).

Results obtained from size frequency distribution, grade size and assortment analysis, which will be conducted on the current ca. 1,125 carat KX36 diamond parcel, will be used both for diamond revenue modelling and to update the Maiden Inferred Resource previously identified for KX36 (24.9 Mt at a grade of 35.2 cpht, containing 8.8 million carats at a +3 DTC diamond sieve bottom cut-off).

Orapa South West project area

Notification of the issue of four new prospecting licences situated to the southwest of the Orapa kimberlite field was received during H1. The licences (totalling 3,699.35 km2) were however issued some time prior to that, on 1 July 2015.

A preliminary review of historical reports pertaining to the project area was completed and historical prospecting licence outlines were reviewed to track the ground holdings of previous companies that have conducted exploration in the area. This, in addition to defining areas that have elevated abundances of larger grains and where certain kimberlite indicator minerals ("KIMs") were more abundant compared to other species and background, has aided in defining focus areas deemed to be of higher interest.

Manica Minerals Co-operation Agreement

The work programme under Petra's diamond exploration co-operation agreement ("Agreement") with Manica Minerals Ltd ("Manica") was specifically focused on the re-evaluation of known kimberlites in the highly prospective Orapa area, where priority targets were drilled and then tested using a proprietary Mantle Mapper™ (sampling of KIMs) process, and in the Jwaneng area, where the focus was placed on the identification and delineation of specific areas within the ground holdings with the potential to host intra-formational ca. 240 Ma Jwaneng-type deposits.

Given that no new discoveries of economic kimberlites were made in the Orapa area under this Agreement, and taking into account the relatively high costs involved in the further exploration for intra-formational deposits in the Jwaneng area, Petra has, after thorough consideration, given notice to Manica of its withdrawal from the Agreement, effective 1 February 2016.

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 2016 was 0.37 (H1 FY 2015: 0.28).

CORPORATE AND GOVERNANCE

Kimberley Mines Acquisition

On 18 January 2016, Petra announced that it had completed the acquisition of a 49.9% interest in the Kimberley Mines in South Africa from De Beers Consolidated Mines Proprietary Limited in a consortium with Ekapa Mining. The acquisition consideration of ZAR 102 million (ca. US$7.2 million) has been funded by the consortium, with Petra's share being ZAR50.9 million (ca. US$3.6 million).

The Kimberley Mines Tailings Mineral Resources ("TMR") are forecast to produce ca. 700,000 ctpa in the first three years of operation, with revenue of ca. US$65 million per annum, based on an assumed diamond price of ca. US$90 per carat. At this point in time, Petra has not revised its Group production guidance, but it will release an update to the market in due course once the initial handover period has concluded.

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 2015 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.

Financing and liquidity

Petra has a significant Capex programme over the years to FY 2019. The Company plans to continue to finance this Capex from treasury, operating cashflows and debt finance.

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, 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, show that, subject to covenants as discussed on page 10, the Group will be able to operate within its current debt facilities and have sufficient financial headroom for the remainder of the Group's Capex programme to FY 2019. However, there remains a risk, given the volatility of the diamond price environment and its 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 delay development work.

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 these initiatives have achieved positive results to date, with an improvement in Cullinan's ROM grade achieved over the last three quarters.

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, 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 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. While this strategy has ensured that there has been no material impact on production, Petra decided to install back-up power generation at its South African mines in calendar 2015 in order to minimise disruption.

OUTLOOK

The Company is continuing to deliver on its targets, with production forecast to grow further to 3.3 - 3.4 million carats in FY 2016 (excluding Kimberley Mines) and on to ca. 5 million carats in FY 2019. As well as growing the volume of carats, Petra's expansion plans will deliver a higher quality of carats due to the lessening reliance on diluted mining areas and tailings production. The improving grade and product mix of the new undiluted mining areas should therefore serve to significantly enhance Group margins in the years to come, without the requirement for an increase in diamond prices.

Our continued focus on operational performance, combined with our robust financial position, therefore 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

22 February 2016

Notes:

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

a. closing rate as at 31 December 2015 US$1:ZAR15.46 (31 December 2014 US$1:ZAR11.57)

b. average rate H1 FY2016 US$1:ZAR13.61 (H1 FY2015 US$1:ZAR10.99)

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. Mcts: million carats

f. mL: metre level

g. Mt: million tonnes

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

i. 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 2015

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2015

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

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2015

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF CASHFLOWS

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2015

¹ Cash and cash equivalents in the Consolidated Statement of Financial Position includes restricted cash of US$11.4 million (30 June 2015: US$13.1 million and 31 December 2014: US$11.9 million) and unrestricted cash of US$30.7 million (30 June 2015: US$153.5 million and 31 December 2014: US$117.7 million).

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2015

 PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2015