Petra Diamonds trims production guidance after earnings slide

Shares in Petra Diamonds were sliding on Tuesday morning, after the company reported a decline in first-half revenue and earnings and lowered its production outlook for the full year.

The London-listed company reported revenue of $187.8m for the period, a decline from $208.5m in the same period a year earlier.

Notably, there was no contribution from profit share arrangements during the period, in contrast to $1.4m in the prior year.

The average realised price per carat stood at $113, down 29% from $159 in the first half of the 2023 financial year, primarily influenced by a 13.3% reduction in like-for-like prices along with changes in product mix.

Despite inflationary pressures, adjusted mining and processing costs remained within expectations.

However, there was a year-on-year increase, largely due to diamond inventory release following the deferral of diamond sales from the previous fiscal year.

Adjusted EBITDA excluding discontinued operations fell to $38.9m from $85.7m, attributed to lower revenues and increased mining and processing costs.

Capital expenditure decreased to $50.5m from $51.9m, with further reductions expected in the second half.

Operational free cash flow experienced an outflow of $21.1m, a reversal from the inflow of $12.5m in the same period a year earlier, mainly due to lower average diamond sale prices.

The company announced an increase in commitments under its existing revolving credit facility, providing additional liquidity headroom.

Unrestricted cash rose to $56.6m, primarily driven by a drawdown on the revolving credit facility and cash generated from operations.

However, consolidated net debt expanded to $212.4m from $176.8m as of 30 June 2023, largely due to negative operational free cash flow and continued capital expenditure.

In December, Petra Diamonds announced the potential sale of Koffiefontein after entering into a non-binding term sheet.

The company said it was continuing to engage with relevant stakeholders, and would provide further updates as necessary.

After the period ended, as a result of underground mechanical issues at Finsch, the board lowered its group production expectations for the 2024 financial year to between 2.75 million and 2.85 million carats, compared to prior guidance of 2.9 million to 3.2 million carats.

“Petra has reacted swiftly to diamond market uncertainty, taking steps to improve resilience through ongoing cost and capital optimisation,” said chief executive officer Richard Duffy.

“Whilst we believe that prices have now bottomed, we expect pricing to recover more slowly than initially thought. We continue to see a supportive market in the medium to longer-term.

“We are on track to deliver the $75m cash savings announced in November, with cost savings expected to contribute around $10m.”

Duffy said the company was replanning the resumption of its capital projects to deliver a smoothed capital and growth profile, with a lower cost structure to be sustainably net cash generative from the 2025 financial year.

“We have progressed towards our target of a zero-harm workplace in delivering an improved LTIFR of 0.15 in the first half of 2024, as compared to 0.19 in the first half of 2023 and 0.24 for the full year of 2023.

“Production at Cullinan Mine has largely stabilised and the ramp-up at Williamson is now complete.

“Post-period end, as a result of underground mechanical issues at Finsch, group production in the 2024 financial year is expected to be 2.75 million to 2.85 million carats, compared to prior guidance of 2.9 million to 3.2 million carats.”

Richard Duffy added that the company had also started trials to further support the traceability of its product.

“We believe that offering verifiable origin and provenance has potential to significantly enhance the purchase experience, highlighting the inherent rarity and uniqueness of natural diamonds to consumers.”

At 1058 GMT, shares in Petra Diamonds were down 13.95% at 37p.

Reporting by Josh White for Sharecast.com.