Petra Diamonds deferring capital spending amid weaker pricing

Petra Diamonds unveiled a series of strategic actions aimed at enhancing its financial resilience on Wednesday in response to challenges being posed by weaker diamond prices and market uncertainties.

The London-listed company said recent initiatives within the diamond industry, designed to address declining diamond prices by rebalancing inventory levels, would contribute to market stabilisation.

However, it said it proactively took immediate steps to bolster its financial flexibility and ensure short- to medium-term liquidity.

One of the fundamental changes involved amending and deferring specific capital programmes, which were expected to reduce Petra’s extension capital expenditure for 2024 by up to $65m.

The amendments included deferring the C-Cut extension project at the Cullinan Mine until the end of June next year and partially deferring the CC1E project at the same mine, focusing on developing higher-grade ore production.

At the Finsch mine, the 3-Level SLC extension project was being deferred until the end of June as well, while the 78-Level Phase II project was continuing as planned for the 2024 financial year to supplement existing production.

Petra said it was also deferring $3m to $5m of sustaining capital expenditure, delaying equipment deliveries, and postponing feasibility studies on future capital investments across its operations.

During the period of reduced development activity, the company said it would explore value-engineering opportunities to improve efficiency and lower costs, with the flexibility to restart deferred programs earlier if market conditions improve.

In addition to capital expenditure adjustments, Petra said it had identified operating and group cost savings of between $7m and $10m against the 2024 financial year guidance.

To further enhance its financial flexibility, the company said it was discussing with Absa Bank to increase its existing ZAR 1bn (£44m) revolving credit facility by up to ZAR 750m, with a decision expected in November.

Despite the challenges, Petra maintained its production guidance for 2024, albeit towards the lower end of the 2.9 million to 3.2 million carats range.

Detailed impact assessments on production and capital expenditure guidance for 2025 and 2026 would be provided on a mine-by-mine basis once value-engineering and re-planning work was complete, the board said.

Petra said it expected to communicate that information alongside its interim results in February.

“Actions announced today in response to the diamond market weakness are aimed at ensuring Petra remains resilient and able to withstand weaker-for-longer market conditions,” said chief executive officer Richard Duffy.

“While diamond inventories remain elevated in both rough and polished goods, we are confident that the discipline shown by diamond producers as well as the Indian diamond import moratorium to mid-December will lead to a recovery in pricing once demand strength returns.”

Duffy said that, through adapting its cost base and deferring two of its capital projects, the company was targeting cash savings of up to $75m by June next year while minimising the impact of the deferrals and aiming to deliver increased production into a more robust pricing environment.

“We will continue to maintain our flexibility to respond to market conditions safely and responsibly, through our enhanced operating model and flexible sales approach.”

At 0841 GMT, shares in Petra Diamonds were down 0.38% at 44.63p.

Reporting by Josh White for Sharecast.com.