Petra Diamonds Regulatory News (PDL)

Petra Diamonds Limited

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

Interim results for the six months to 31 December 2013

Petra Diamonds Limited announces its interim results (unaudited) for the six months to 31 December 2013 ("the Period" or "H1 FY 2014" or "H1"), following the publication of the Company's production and sales Trading Update on 23 January 2014.

HIGHLIGHTS

Financial

· Revenue up 19% to US$185.5 million (H1 FY 2013: US$156.3 million).

· Profit from mining activity2 up 115% to US$73.4 million (H1 FY 2013: US$34.2 million).

· Adjusted EBITDA3 up 157% to US$65.8 million (H1 FY 2013: US$25.6 million).

· Net profitafter tax of US$28.4 million (H1 FY 2013: US$15.2 million loss).

· EPS: 4.70 US$ cents (H1 FY 2013: 1.91 US$ cents loss); adjusted EPS5: 4.52 US$ cents (H1 FY 2013: 1.93 US$ cents).

· Operating cashflow up 249% to US$91.9 million (H1 FY 2013: US$26.3 million).

· Cash at bank at 31 December 2013 of US$28.0 million (H1 FY 2013: US$38.2 million) and diamond inventories of ca. US$49.4 million (H1 FY 2013: ca. US$45.4 million).

· Loans and borrowings at 31 December 2013 of US$136.8 million (H1 FY 2013: US$124.2 million).

· Net debt of US$108.8 million (H1 FY 2013: US$86.0 million), (excluding foreign exchange settlement lines), in line with expectations, and capital expansion plans remain fully funded; debt facilities (including the foreign exchange settlement lines) undrawn and available to the Group at 31 December 2013 of US$67.5 million (H1 FY 2013: US$122.3 million).

Operations

· Production up 31% to 1,635,716 carats (H1 FY 2013: 1,247,522 carats); Petra remains firmly on track to meet full year guidance of ca. 3.0 Mcts for FY 2014.

· Costs remain well controlled; refer to Operations section for detailed mine by mine review.

· Capital expenditure ("Capex") of US$85.3 million (H1 FY 2013: US$92.1 million), in accordance with the roll out of the Group's expansion programmes; full year spend on track to be in line with FY 2014 guidance.

· H1 Capex was fully funded by operating cashflow for the Period.

Exploration

· Petra has entered into a co-operation agreement ("Agreement") in Botswana with Manica Minerals, led by Dr. Peter Hildebrand and Dr. John Gurney, the renowned kimberlite expert. The Agreement will combine the extensive exploration experience of both parties and will provide access to prospective Botswana Precious Stones Prospecting Licences covering approximately 23,000km2.

· Work programmes progress at the KX36 kimberlite and surrounding areas.

Diamond Market

· The market for rough diamonds has strengthened over recent months; Petra expects this firmer market to continue, with solid results expected from the Group's tenders in H2 FY 2014 ("H2").

· Longer term, a positive outlook for the diamond market is supported by the continued economic recovery in the US and growth in demand from emerging consumer markets.

Health and Safety

· As previously reported, an accident occurred at the Cullinan mine on 17 January 2014 which led to the passing away of one Petra employee; Petra and its management express their sincere condolences to the family and friends of the deceased.

· The health and safety of all employees is of the utmost importance to the Company and Petra will relentlessly continue to take whatever action is required in pursuit of a zero harm environment.

· The Group lost time injury rate ("LTIFR") for H1 FY 2014 of 0.28 was a significant improvement on the 0.53 for H1 FY 2013.

Outlook

· As per guidance, carat sales are expected to be significantly higher in H2 than in H1 due to the seasonal timing of Petra tenders (four tenders are held in H2, as opposed to three in H1) and the US$25.6 million sale proceeds from the exceptional 29.62 carat Cullinan blue diamond sold on 14 February 2014.

· First South African tender of H2 achieved US$60.2 million on the sale of 432,187 carats; including the proceeds of the 29.6 carat blue diamond, the Company's H2 revenue to date is US$85.7 million.

· Based on the Company's current operations and expansion plans, stated production growth, diamond prices and other relevant factors, Petra expects to consider the commencement of dividend payments from FY 2016.

Johan Dippenaar, CEO of Petra, commented:

"Petra's growth plan to achieve annual production of 3 million carats in FY 2014 and 5 million carats by FY 2019 continues to progress well, with all expansion programmes on track and on budget, and Group Capex entirely funded by operating cashflow for the first time during H1 FY 2014.

"We look forward to a strong second half, incorporating a continued firm rough diamond market, higher carat sales, and higher revenue and cashflows augmented by the sale proceeds of the 29.6 carat blue diamond from Cullinan."

Analyst presentation and webcast

A presentation for analysts will be held at 9:30am GMT on 20 February 2014 at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. A live webcast of the analyst presentation will be available on Petra's website at www.petradiamonds.com and on the following link: http://www.axisto-live.com/investis/clients/petra-diamonds/presentations/52fb5688de2f8a3c3b1962c2/interim-results-fy2014.

A recording of the webcast will be available from 1:00pm GMT on 20 February 2014 on the website and on the same link.

SUMMARY OF RESULTS (unaudited)

Notes:

The Group uses several non-GAAP measures above and throughout this announcement, including adjusted mining and processing costs, profit from mining activities, adjusted EBITDA, adjusted net profit after tax and adjusted earnings per share. 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. Petra's FY 2013 interim results, published on 25 February 2013, accounted for the Fissure Mines as assets held for sale and as discontinued operations. Subsequent to the publication of the FY 2013 interims, the Fissure Mines were withdrawn from sale and therefore the FY 2013 interim results have been restated to include the Fissure Mines results within Profit from mining activity, as was the case with Petra's audited FY 2013 results (refer to note 8).

2. Stated before depreciation, share-based expense, retrenchment costs and impairment charges, as applicable.

3. Adjusted EBITDA is EBITDA (profit before interest, tax, depreciation and amortisation) stated before share based expense, net unrealised foreign exchange gains and losses, retrenchment costs, impairment charges and non-recurring transaction costs.

4. Net finance expense of US$1.0 million (FY 2013: US$3.4 million expense, and H1 FY 2013: US$0.5 million income) is comprised of the remaining income and expenses as disclosed in note 7 to the Condensed Consolidated Interim Financial Statements ("the Interims"), excluding unrealised foreign exchange gains and losses.

5. Stated before retrenchment costs, impairment charges, non-recurring transaction costs, net unrealised foreign exchange gains and losses. Refer to note 14 for the adjusted EPS and restatement.

6. In FY 2013 retrenchment costs of US$2.6 million and impairment charges of US$12.6 million were due to the Group's decision to place the Sedibeng and Star mines on care and maintenance.Refer to note 8 for details of this and the H1 FY 2013 impairment charge.

7. Net unrealised foreign exchange gains and losses are explained in the Financial Review section of this report.

For further information, please contact:

~ Ends ~

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 mines: five in South Africa (Finsch, Cullinan, Koffiefontein, Kimberley Underground and Helam) and one in Tanzania (Williamson). It also maintains an exploration programme in Botswana.

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

Petra conducts all operations according to the highest ethical standards and will only operate in countries which are members of the Kimberley Process. Petra is quoted with a premium listing on the Main Market of the London Stock Exchange under the ticker 'PDL' and is a constituent of the FTSE 250. For more information, visit the Company's website at www.petradiamonds.com.

CEO'S REVIEW

Petra has recorded a strong first six months of FY 2014, delivering further significant production and revenue growth, and putting Petra firmly on track to meet its guidance of ca. 3 Mcts for FY 2014.

The Company has also increased its underlying profitability, with profit from mining activity up 115% to US$73.4 million, representing an operating margin of 39.6%, and operating cashflow up 249% to US$91.9 million.

For the first time since starting our significant capital programmes in FY 2008, Petra has funded the Group's Capex for the Period of US$85.3 million from operating cashflow. We expect cashflows to be higher in the second half, due to our usual practice to hold an additional tender in H2, leaving the Group in a robust position financially.

Cost control is core to Petra's operating culture and the Company achieved good results in this area during the Period. On a US Dollar reporting basis, costs were further assisted by the significant weakening of the Rand.

Looking forward, Petra's production growth will be driven by the transition from the mature mining blocks (where a high degree of grade dilution is recorded) to new mining areas, which will provide access to undiluted ore. The Company's margins are therefore expected to increase further to +50% by FY 2019, as the diamond content of the tonnes drawn from underground will be considerably higher. These margin improvements will be assisted by orehandling simplifications and other initiatives to drive efficiencies that have been built into each operation's expansion programme.

Petra's strategy is to continue to deliver on its expansion plans into these new mining areas and to increase its cashflow generation. Based on the Company's current operations and expansion plans, stated production growth, diamond prices and other relevant factors, Petra expects free cashflow to allow the Company to consider the commencement of dividend payments from end FY 2016.

Post Period end, the exceptional 29.62 carat blue diamond recovered from Cullinan in January was sold on 14 February 2014 for US$25,555,555 (US$862,780 per carat), following a highly competitive sales process.

DIAMOND MARKET

Although the rough diamond market was weak during Q1 FY 2014, the market firmed up towards the end of the Period and into H2. The Company saw solid prices achieved at its February 2014 tender, which was well attended and recorded revenues of US$60.2 million achieved on the sale of 432,187 carats, excluding the sale proceeds from the exceptional 29.6 carat blue diamond of US$25.6 million.

Further to reports of sound seasonal sales, increasing global economic confidence and restocking of the diamond pipeline, Petra expects these firm market conditions to continue throughout H2. Longer term, a positive outlook for the diamond market is supported by the continued economic recovery in the US and growth in demand from emerging consumer markets.

The diamond prices table below is as previously disclosed in the Company's Trading Update on 23 January 2014 and demonstrates that pricing in H1 was largely in line with guidance. The variation at Finsch is due to the plant cut-off change, with an increase in smaller diamonds recovered but importantly a higher revenue per tonne than would have otherwise been the case. FY 2014 price guidance for Finsch has therefore been adjusted from US$113/carat to US$100/carat. Management maintains its FY 2014 Cullinan price guidance of US$139/carat, excluding the sale proceeds from the 29.6 carat blue diamond of US$25.6 million.

Note:

1. Cullinan's H1 average value included the 126.4 carat diamond that sold for US$8.5 million; excluding this stone, the average value was US$129/ct.

FINANCIAL RESULTS

Revenue

Revenue was up 19% to US$185.5 million (H1 FY 2013: US$156.3 million), reflecting the Group's increased production.

Carats sold were up 33% to 1,417,694 carats (H1 FY 2013: 1,066,662); carat sales were lower than carats produced due to the seasonal timing of Petra's tenders. As usual, Petra held three tenders in H1 (equating to five months production) and will hold four tenders in H2 (equating to seven months production).

During H1 FY 2014, five stones exceeding US$1 million each were sold yielding a total of US$15.5 million in sales revenues (H1 FY 2013: five stones exceeding US$1 million each sold for a total of US$8.0 million). This included the 126.4 carat stone from Cullinan that was sold for US$8.5 million in the December tender.

Adjusted mining and processing costs

Overall, mining and processing costs in US$ terms (before depreciation and share based expenses) decreased by 8% compared to H1 FY 2013. For the South African operations, costs increased in Rand terms by approximately 11%, mainly due to the increase in production coupled with inflationary cost escalations. This Rand increase was offset by a weakening ZAR against the US Dollar, averaging R10.07 versus H1 FY 2013 R8.46.

Profit from mining activity

Profit from mining activity was up 115% to US$73.4 million (H1 FY 2013: US$34.2 million), reflecting increased revenues, together with decreased costs in US$ terms as noted above, which resulted in an increased profit margin from mining activity of 39.6% (H1 FY 2013: 21.8%).

Exploration

Petra incurred US$1.4 million on exploration expenditure during the Period (H1 FY 2013: US$2.8 million).

Corporate overheads

Corporate overheads of US$6.2 million for the Period (H1 FY 2013: US$5.8 million) remain well controlled and in line with the broader cost control procedures in place across the Group.

Adjusted EBITDA

Adjusted EBITDA, being profit from mining activities less exploration and corporate overheads as covered above, increased by 157% to US$65.8 million (H1 FY 2013: US$25.6 million), due to the increased profit from mining activity.

Depreciation

Depreciation of US$21.1 million (H1 FY 2013: US$20.7 million) is in line with guidance and the Company maintains its FY 2014 guidance of ca. US$45 million.

Net finance expense

The Group incurred a net finance expense of US$1.0 million (H1 FY 2013: US$0.5 million income), being interest received on cash balances, net interest receivable from the BEE partners' loans and realised foreign exchange gains, offset by interest payable on the Williamson portion (other interest and fees are capitalised, refer below) of the Group's debt facilities, the Group's working capital facility, and the unwinding of the present value adjustment for rehabilitation costs.

The majority of interest and fees associated with the Company's bank debt are capitalised, as the bank debt is incurred to finance the capital expansion programme in the Company's operations. The Company's Capex guidance is on a cash basis, and does not include the capitalised fees and interest.

Net unrealised foreign exchange gain

During the Period, the Group recorded net unrealised foreign exchange gains of US$0.9 million (H1 FY 2013: US$1.1 million loss), mainly arising due to unrealised foreign exchange movements on the retranslation of foreign subsidiary intercompany loans to US$.

Net profit

A net profit after tax of US$28.4 million was recorded for the Period (H1 FY 2013: loss of US$15.2 million).

Earnings per share

Basic earnings per share of 4.70 US$ cents were recorded (H1 FY 2013: 1.91 US$ cents loss), in line with management's stated objectives of growing the Group's earnings as the Company delivers on its production growth plans.

Cash and debt

As at 31 December 2013 the Group had cash at bank of US$28.0 million (H1 FY 2013: US$38.2 million) and diamond inventories of ca. US$49.4 million (H1 FY 2013: ca. US$45.4 million).

Of the cash balance at Period end, US$10.6 million is held by Petra's reinsurers as security deposits on the Group's cell captive insurance structure (with regards to the Group's environmental guarantees), and US$1.7 million is held by Petra's bankers as security for other environmental rehabilitation bonds lodged by Petra's bankers with the South African Department of Mineral Resources; the balance of US$15.7 million is unrestricted cash.

Facility utilisation at 31 December 2013 was US$145.6 million (H1 FY 2013: US$127.2 million), comprising bank loans and borrowings of US$136.8 million (H1 FY 2013: US$124.2 million) and US$8.8 million (H1 FY 2013: US$3.0 million) utilisation of foreign exchange settlement lines. Facilities undrawn and available to the Group at 31 December 2013 (including the foreign exchange settlement line) totalled US$67.5 million (H1 FY 2013: US$122.3 million). The foreign exchange settlement line forms part of the Group's strategic hedging strategy and the mark to market thereon is reflected in other payables.

Net debt at 31 December 2013 was US$108.8 million (H1 FY 2013: US$86.0 million), in line with management's plans. The Company's capital expansion programmes remain fully funded from treasury, bank facilities and cashflows.

Other than trade and other payables of US$48.0 million (H1 FY 2013: US$52.8 million), the remaining liabilities on the balance sheet comprise provisions for various rehabilitation liabilities, accounting for amounts owing due to the financing of the minorities in Finsch and Cullinan, employee related provisions and deferred tax.

Cashflow

Operating cashflow for the Period was US$91.9 million (H1 FY 2013: US$26.3 million), a healthy increase on the comparative period and which importantly funded the Group's Capex spend for the Period of US$85.3 million.Looking forward, the Group expects to soon record significant increases in net Group cashflow in line with increasing profits from mining activity and, from the end of FY 2015, a reduction in overall expansion capital spend (in line with guidance capital spend peaks in FY 2015).

The Group's funding headroom improved during the course of H1 in line with the stronger production and weaker ZAR, and headroom is expected to increase further in H2 due to increased sales volumes and the sale proceeds of US$25.6 million from the exceptional 29.6 carat blue diamond.

Capex

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

Capex (excluding financing costs, as per guidance) for H1 FY 2014 was US$80.6 million (H1 FY 2013: US$82.1 million), split as to US$69.0 million on expansion Capex (H1 FY 2013: US$61.6 million) and US$11.6 million on sustaining Capex (H1 FY 2013: US$20.5 million).

US$4.7 million (H1 FY 2013: US$10.0 million) of capitalised borrowing costs related to Capex funding is included in the applicable mine by mine tables in the Operations section.

Note:

1. Petra operates an internal projects / construction division and although this division's spend is reported in the Group's total Capex, it is policy not to account for it on a specific mine's Capex until the project is completed and delivered. During the Period, Petra internal projects invoiced US$0.9 million (H1 FY 2013: US$22.5 million) to operations and incurred US$9.3 million (H1 FY 2013: US$15.5 million) on further project spend.

Operations

H1 FY 2014 Sales, Production and Capex - Summary

H1 FY 2014 production increased 31% to 1,635,716 carats (H1 FY 2013: 1,247,522 carats), primarily due to increased production at Finsch and the continued ramp-up of tailings production at Cullinan. This strong H1 FY 2014 production rate was achieved despite the previously announced Q1 labour action and work stoppages. The labour situation at Petra's South African operations has remained stable since the end of the industrial action.

Petra remains firmly on track to meet FY 2014 production guidance of ca. 3.0 Mcts and to reach its longer term target of ca. 5 Mcts by FY 2019.

Finsch - South Africa

Production:

Finsch was the only South African operation unaffected by the previously reported industrial action during August / September 2013. Finsch's carat production increased by 52% to 974,431 carats (H1 FY 2013: 642,654 carats), mainly due to the plant changes (lowering the cut-off) towards the end of FY 2013. These plant adjustments resulted in a smaller overall diamond size frequency and a subsequent reduction in the average value per carat, though more than offset by the higher recovered grades. Importantly, Finsch overall revenues and the contained revenue per tonne have benefitted (estimated by ca. 10%) as a result of these changes.

Although reported grades at Finsch for the Period are 37.6 cpht for ROM and 31.0 cpht for tailings respectively, these are theoretical allocations due to the use of a common treatment plant. The Company's guidance for H2 FY 2014 is ca. 37.0 cpht for ROM and 23.0 cpht for tailings.

Sales:

As previously noted, the lower average value per carat achieved at Finsch of US$96 (H1 FY 2013: US$122), is due to the plant changes in order to capture the high quality small diamonds which are a feature of the orebody. Petra has also lowered its previous price guidance for FY 2014 to US$100 per carat to reflect the impact of these changes.

Costs:

The on-mine unit cash cost per total tonne treated of R143 was up 3% from H1 FY 2013 due to inflationary cost increases and in line with guidance.

Capex:

Capex of US$24.7 million for the Period (H1 FY 2013: US$20.8 million) was in line with guidance and the progression of the expansion project and associated underground development.

Development Programme:

Block cave mining is currently taking place in Block 4 of the Finsch orebody on the 630 metre level ("mL"). Block 4 is near the end of its economic life and is subsequently heavily diluted with waste material. Petra is therefore implementing a development plan to open up new mining areas, below the current Block 4 operations.

Production levels from underground will be maintained during the transition from the Block 4 cave to the Block 5 cave by the development of a sub level cave ("SLC"). Development of the SLC is progressing in line with expectations and 2,953 metres of tunnels (out of a total SLC plan of 10,072 metres, of which 6,246 metres relate to kimberlite tunnel development), have been developed to date.

Petra previously advised that it planned to implement the Rail-Veyor® systemat Finsch as the ore-handling system to transfer the SLC material to the existing loading and hoisting infrastructure on 650 mL. Following further technical analysis of the capital and implementation costs, Petra has revised this plan and has chosen to implement a proven conveyor system to handle the SLC material. The Company will provide further details on capital adjustments with its FY 2015 Guidance in August, but changes to overall Capex and costs are not expected to be significant.

Cullinan - South Africa

Note:

1. Cullinan's H1 average value included the 126.4 carat diamond that sold for US$8.5 million; excluding this stone, the average value was US$129/ct

Production:

Cullinan's diamond production increased 13% year on year, delivering 461,338 carats (H1 FY 2013: 408,764 carats) mainly due to increased tailings production and the successful implementation of initiatives to make up the lost production following the work stoppages in Q1.

ROM grade was well maintained and reflects the Company's strategy to open up access to tonnages in the BA5 production area on the 645 mL, which had formerly been closed down. This western part of the orebody has a historically proven greater frequency of high value stones, and increased pillar mining from this area contributed towards a larger number of special stone recoveries. 

Construction and commissioning of the new tailings treatment facility has been completed, but ramp-up of production has been slower than anticipated, thereby affecting throughput for the Period. The re-crush module, which will assist in increasing the liberation efficiency and hence the recovered grade, is currently under construction. Tailings production is now forecast to reach ca. 2.2 Mtpa for FY 2014, but will reach steady state levels of production of 2.7 Mtpa in FY 2015 at a grade of ca. 7.5 cpht.

Sales:

The average value per carat of US$150 was higher than guidance of US$139 further to the sale of the 126.4 carat diamond for US$8.5 million; excluding this stone, the average value was US$129.

Post Period end, the exceptional 29.6 carat blue diamond recovered at the mine was sold in February 2014 for US$25.6 million.

Costs:

The on-mine unit cash cost per total tonne treated of R147 was an improvement of 13% from H1 FY 2013, mainly due to increased tailings production. The cash unit cost exceeded FY 2014 guidance mainly due to the lower than planned tailings throughput.

Capex:

Capex of US$37.2 million (H1 FY 2013: US$44.6 million) was in line with guidance.

Development Programme:

Cullinan contains a world-class diamond resource of 200.8 Mcts and the Company is capitalising on this by undertaking an expansion programme at the mine to take annual production to 2.2 Mcts by FY 2019. The expansion plan (the C-Cut Phase 1) will establish a new block cave on the western side of the orebody in the upper portion of the major C-Cut resource (estimated to contain some 133 Mcts in total).

As previously reported, ROM grade at Cullinan will remain a challenge whilst production continues to come from the mature areas of the mine (due to the significant dilution of the ore drawn in these older production zones). However, from FY 2016 the grade is expected to start to increase gradually, eventually rising to ca. 50 cpht by FY 2019, once only undiluted ore is being mined and treated.

The development of the underground declines and access tunnels, as well as the shaft preparation work, is progressing in line with expectations. The South Decline has now been completed and development of tunnels has progressed apace, with 7,068 metres (out of a total of 24,575 metres) developed to date.

Koffiefontein - South Africa

Production:

Koffiefontein's H1 output was affected by the reported work stoppages. However, the treatment of higher grade recovery tailings both during and after the strike period largely negated its impact. Increased tonnages mined resulted in a 48% increase in ROM production to 9,158 carats in H1 (H1 FY 2013: 6,194 carats) while the Ebenhaezer pit, supplemented by recovery tailings, delivered 18,843 carats (H1 FY 2013: 12,335 carats).

The higher ROM grade of 7.5 cpht reflects the Company's ongoing transition to the new mining areas.

Sales:

Koffiefontein's average value per carat of US$451 was lower than guidance of US$518 due to the effect of higher volumes of lower value recovery tailings.

Costs:

Absolute costs at Koffiefontein were ca. 11% lower than management plans and guidance. However, the on-mine unit cash cost per total tonne treated of R231 increased by 79% compared to H1 FY 2013. This was mainly due to the processing of higher value tonnes from the recovery tailings, and therefore the total volume of low value other surface and tailings tonnes reduced substantially.

Capex:

Capex for the Period of US$6.0 million (H1 FY 2013: US$10.1 million) was primarily focused on underground development and purchasing of plant, mining and surface equipment.

Development Programme:

Petra's expansion plan at Koffiefontein will take production to circa 100,000 carats by FY 2016 (90,000 carats ROM and 10,000 carats tailings). The Company's expansion programme is again establishing new production levels in order to provide access to undiluted ore.

Kimberley Underground - South Africa

Note:

1. On-mine cash costs exclude costs assigned to ROM stockpiles.

Production:

Despite the work stoppages, Kimberley Underground's production increased 7% on the comparative period to 63,436 carats (H1 FY 2013: 59,304 carats) due to the continued ramp up of the mine. Final plant changes are currently being implemented in order to aim to deliver Kimberley Underground's guided throughput for the remainder of FY 2014.

The higher ROM grade of 15.5 cpht was in line with guidance and is further to the final tonnages from the higher grade Bultfontein pipe being treated.

Sales:

The average value per carat of US$297 was in line with guidance of US$301 and reflects the high quality of Kimberley Underground's production.

Costs:

The on-mine unit cash cost per total tonne treated of R313 increased by 28% on H1 FY 2013 mainly due to below plan throughput, coupled with increased costs associated with unforeseen breakdowns and maintenance expenditure.

Capex:

Capex reduced considerably to US$3.3 million (H1 FY 2013: US$16.4 million) further to the near completion of Kimberley Underground's expansion plan.

Williamson - Tanzania

Note:

1. On-mine cash costs exclude costs assigned to ROM stockpiles.

Production

Williamson's diamond production increased 8% to 86,309 carats (H1 FY 2013: 79,910 carats). H1 results were impacted by the planned downtime to effect certain changes to the treatment plant, but full year production is expected to be in line with guidance.

Sales

Williamson produces high quality diamonds and the average value of US$254 was in line with management guidance.

Costs:

The on-mine unit cash cost per total tonne treated of US$11.6 shows a 6% improvement compared to H1 FY 2013 and remains in line with guidance.

Helam - South Africa

Production:

Helam's production was more impacted by the industrial action than Petra's other operations, due to it being a more labour intensive mine, and therefore decreased 24% to 21,061 carats (H1 FY 2013: 27,831 carats).

Sales:

The average value per carat of US$155 was slightly above guidance of US$145.

Costs:

The on-mine unit cash cost per total tonne treated of R974 increased by 4% on H1 FY 2013 mainly due to the reduction in tonnes treated and the fixed nature of its costs.

Sedibeng and Star - South Africa

The Sedibeng and Star fissure mines remain on care and maintenance, with US$3.5 million cash spend included within mining and processing costs.

EXPLORATION - BOTSWANA

Manica Minerals Co-operation agreement

As a new development, Petra announces that its subsidiary Petra Diamonds Botswana Pty Ltd has entered into a diamond exploration co-operation agreement ("Agreement") with Manica Minerals Ltd ("Manica"), which is led by Dr. Peter Hildebrand and Dr. John Gurney, the renowned kimberlite expert.

The Agreement is an exciting development for Petra, due to the combined kimberlite exploration skills and expertise in both Manica and Petra, together with the prospective exploration ground that will be introduced into the Agreement arrangement by Manica.

The basis of the Agreement is that Petra contributes operational experience, expertise, operational infrastructure and funding, whilst Manica provides access to additional prospective Botswana Precious Stones Prospecting Licences covering approximately 23,000km2, as well as the extensive expertise and operational abilities of the Manica team.

The early stage exploration planning and work programme will be overseen by a committee in which Petra has a casting vote. The funding of this Agreement will not materially change Petra's annual exploration spend; further detail will be provided with FY 2015 annual guidance in August this year.

KX36 and surrounding area

Petra is undertaking an evaluation of the KX36 kimberlite discovery and an intensified search for other kimberlites in the surrounding area. During the Period, Petra carried out the third phase of a narrow diameter drilling ("NDD") campaign at KX36, the objectives of which were to further delineate the pipe by filling in data gaps previously identified from the KX36 Gemcom model, and to acquire geotechnical information about both the kimberlite and its host rock to a depth of ~300m.

Following the successful completion of this NDD campaign (3,405m; 1,602m of kimberlite), the data obtained through detailed geotechnical, lithological and downhole geophysical logging is now ready for integration into the Gemcom model. The focus at this stage is to move the kimberlite out of the 'deposit' status of the SAMREC code; however, significant work still has to be done to increase the confidence levels of both grade and value before making this transition.

In terms of KX36 regional exploration, the high resolution regional deflation sampling programme covering kimberlite KX36 and the immediate surrounds that commenced late FY 2012 has been completed. To date, 7,750 deflation samples have been collected and despatched for analysis. Visually identified kimberlite indicator mineral ("KIM") recoveries define an anomalous zone trending south west of the KX36 kimberlite. This broad KIM anomaly seems to break up into several separate anomalies.

Following the analysis, interpretation and final integration of the KX36 region SkyTEM Heli-borne electromagnetic data with all other geological and geophysical data obtained to date, a target generation exercise led to the selection of 12 priority drill targets in relatively close proximity to KX36. To date, three of these targets have been drilled to a cumulative depth of 390m. The drilled targets were mainly electromagnetic and magnetic anomalies selected within a high interest area with respect to the kimberlitic indicator distribution. All three holes were negative, terminating in basalt. The remainder of the targets will be drilled during H2 FY 2014.

A review of historical heavy mineral sampling results in the Lebung West area has enabled the design of a 10km by 15km deflation sampling block (approximately 80km North East of KX36) to be covered at a sampling interval of 500m. Regional heavy mineral sampling of this block has commenced and a total of 220 samples have been collected to date, with the first concentrate expected in early H2 FY 2014. Ground geophysical follow-up of previously identified magnetic targets within the project area is ongoing.

HEALTH AND SAFETY

The health and safety of all employees is of the utmost importance to the Company and Petra will relentlessly continue to take whatever action is required in pursuit of a zero harm environment.

It is with deep regret that the Company reported an accident which occurred at the Cullinan mine on Friday 17 January 2014 and which led to the passing away of one Petra employee on Sunday 19 January 2014. An investigation into this accident is underway in conjunction with the Department of Mineral Resources and the relevant trade unions.

Petra and its management once again express their sincere condolences to the family and friends of the deceased employee.

The Group LTIFR for H1 FY 2014 of 0.28 was an improvement on the 0.53 for H1 FY 2013 (the comparative number has been adjusted further to the more labour-intensive Star and Sedibeng mines being placed on care and maintenance in FY 2014). The LTIFR for H1 FY 2013 before adjustment was 0.84.

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 2013 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 (Market and Price Risk)

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.

Exchange Rates (Currency Risk)

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

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

Labour unrest in South Africa

As previously announced, certain of the Company's South African operations (Cullinan, Koffiefontein, Kimberley Underground and Helam) were affected by work stoppages during August/September 2013. However, the Company was able to maintain around a 60% level of normal production during this time and was able to reach a satisfactory resolution to the industrial action after an approximately two week period.

Whilst labour relations are currently stable, there remains the potential for further unrest in South Africa in the short term. Petra remains focused on managing labour relations and on maintaining open and effective communication channels with the appropriate union representatives at its operations.

ROM grade volatility

As previously announced, 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 undiluted ore to the production profile from FY 2015 onwards.

Petra is managing this issue by developing access to undiluted 'gapfiller' tonnes which can be drawn whilst the expansion plans progress, as outlined in the sections on Finsch and Cullinan above. Mitigation of the risk at Finsch has also been assisted by the plant changes (lowering the cut-off) implemented towards the end of FY 2013, which has served to significantly increase the mine's ROM grade.

OUTLOOK

The Company's operational performance, robust financial position and the strength in the diamond market combine to form a positive outlook for Petra's H2 FY 2014 and longer term business plan.

Johan Dippenaar

Chief Executive Officer

20 February 2014

Notes:

1. The following exchange rates have been used for this announcement: average for the Period US$1:R10.0709; 31 December 2013 US$1: 10.4470.

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

a. ct: carat

b. cpht: carats per hundred tonnes

c. Mctpa: million carats per annum

d. Mcts: million carats

e. ROM: run-of-mine

PETRA DIAMONDS LIMITED

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2013

The H1 FY 2013 comparative has been restated as the Fissure Mines have been reclassified to continuing operations. Refer to note 8. Unrealised foreign exchange has been split into gains and losses for consistency with other periods presented.

PETRA DIAMONDS LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2013

¹ Exchange differences recognised on valuation losses on available for sale financial assets and translation of foreign operations will be reclassified to profit and loss if specific future conditions are met.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2013

 PETRA DIAMONDS LIMITED

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2013

PETRA DIAMONDS LIMITED

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2013