Petra Diamonds says likely to breach covenants

Petra Diamonds said it is likely to breach its covenants by the end of the year due to the labour disruption at three of its South African operations and uncertainty around the final volume of sales for the Williamson mine in Tanzania.

The company said it has informed its lender group and it will remain in “regular engagement” with them on this matter.

On 18 September, Petra said in its preliminary results for the year to the end of June that its compliance with the two EBITDA-related maintenance covenant measurements related to its senior debt facilities for the period ending 31 December 2017 remained sensitive to changes in diamond prices, exchange rates and expected production from its mines, including total carats and mix.

It said on Monday: "The company's forecasts indicate that the group retains sufficient liquidity from existing cash resources, operating cashflows and existing facilities to meet its liabilities as they fall due under the forecasts and reasonably possible sensitivities."

Investec said: “This update is not a surprise in light of the labour disruptions that have taken place and political uncertainty concerning the Williamson Mine in Tanzania. We await the renegotiation of covenants and hope that the balance of risk is improving after December. Company’s Q1 update is on 23rd October which will provide an insight if all is on track to deliver targets.”

RBC Capital Markets also said the news was not a surprise. "The challenge for the shares, we believe, will be market uncertainty until Petra reaches a covenant waiver/relaxation agreement with its lenders (our base case assumption is that waivers are granted, although it is possible that a waiver fee may be charged)."

At 0910 BST, the shares were down 4.7% to 79.62p.