Covid-19 takes shine off Petra as earnings tumble

Petra Diamonds reported a slide in full-year earnings on Monday, after the Covid-19 pandemic restricted production and weakened demand.

Revenues for the year to 30 June fell 36% to $295.8m, while adjusted earnings before interest, tax, depreciation and amortisation tumbled 58% to $64.8m.

The net loss after tax was $223.0m, including a non-cash impairment charge of $91.9m. A year previously, the net loss was $258.1m following a non-cash impairment charge of $246.6m.

Richard Duffy, chief executive, said: “The full-year 2020 and the current financial year to date have undoubtedly been very challenging.”

Duffy said the firm – which operates three mines in South Africa and one in Tanzania – had been on track to meet its production target of around 3.8m carats for the year until Covid-19 had a “severe impact” on operations from the third quarter onwards. “While production was permitted to continue at our mines, it had to be significantly scaled down, with stringent protocols put in place to mitigate the spread of the disease and protect our people.”

Demand was also affected: “The impact of Covid-19 on the diamond market was immediate and served to significantly reduce activity throughout the pipeline, from production, rough sales, trading, cutting and polishing, right through to consumer sales,” the firm noted

Looking ahead, Petra said: “While diamond market conditions have been improving in recent months, further to a period of constrained supply and restocking ahead of the seasonally stronger jewellery retail season, all participants in the industry recognise that risk to a sustained recovery remain, particularly in light of the current resurgence of Covid-19 in key diamond markets.”

Production guidance for the current year remains suspended.

However, Duffy said: "While there have been unprecedented challenges to contend with its 2020, I am pleased that operationally the company has performed very well, strongly supported by Project 2022-driven efficiencies.

“This, combined with our highly-valued people, world-class asset base and the agreement in principle reached with our noteholders and lender group on our long-term capital structure, provides a sustainable figure for the company, once operating conditions normalise.”

Last month, Petra agreed a debt-for-equity swap with debt holders, which will leave existing shareholders with just a 9% stake.

As at 1215 GMT, shares in Petra were ahead 1% at 1.62p.

Peel Hunt, which has a ‘buy’ recommendation on the stock and 5p price target, said: “We continue to take the view that following the debt restructuring...the company looks well placed to benefit from higher diamond prices as demand recovers and supply tightens further.”