Petra Diamonds earnings sink despite improved revenue

Petra Diamonds posted an 11% improvement in revenue for the year in its preliminary results on Monday, to $477m, while its adjusted EBITDA fell 4% to $167.2m.

The FTSE 250 diamond producer said its adjusted net profit after tax plummeted 54% to $29m in the 12 months to 30 June, while net profit after tax on a reported basis was 69% lower at $20.7m.

The company generated 10% less cash from operations that it did last year, at $160.2m, and it held net debt of $555.3m at period end, compared to $328.8m at the end of the last financial year.

Basic earnings per share were down to 3.47 US cents, from 10.38 cents last year, while adjusted earnings per share fell to 5.04 cents from 9.76 cents.

The board said its results could be put down to the delayed ramp-up of the expansion programmes, rising on-mine cash costs and a stronger South African rand.

“While Petra remained in growth mode in FY 2017, achieving record production and revenue, the shortfall against guidance, in conjunction with the significant strengthening of the rand on our predominantly rand-denominated cost base, impacted our financial results for the year,” said CEO Johan Dippenaar

On the operational front, production was up 8% to 4.0 Mcts, with capex - excluding capitalised borrowing costs - falling to $254.6m from $295.8m as a result of the “advanced stage” of the group’s expansion programme.

Petra’s safety improved on a paper basis during the year, with group lost-time injury free rate improving to 0.27 from 0.19, although it still suffered six fatalities during the year, with “extensive” safety reviews initiated and ongoing.

Gross diamond resources, including reserved, decreased 2% to 304.9 Mcts by year-end, which the board put down to both depletion and re-estimation of resources.

“However, the challenges related to the commissioning of the Cullinan Plant have now been overcome and it is ramping up in line with expectations, plus the new mining areas at our two biggest mines, Finsch and Cullinan, are set to deliver double the amount of undiluted ore in FY 2018,” said Dippenaar.

“The impact of a rising contribution of undiluted ore has already seen ROM grades at both mines rise ca. 30% in FY 2017”

Dippenaar said that, while the diamond market did show “some softness” at Petra’s first tender of the 2018 financial year, that appeared to be attributable to normal seasonal factors, as the board’s assessment of the wider market is that it remained stable.

“We view the big push in diamond marketing now being made by the Diamond Producers Association, as well as De Beers, as very positive in terms of supporting future consumer demand.”