Petra shares slide amid difficult diamond market

The London-listed firm said its adjusted EBITDA was down 11% year-on-year for the six months ended 31 December to $67.2m, while its operational free cash flow slid to $13.7m from $18.5m a year earlier, which was also blamed on the decline in diamond prices.

Its net loss after tax narrowed to $10m from $57.9m, while basic losses per share were 1.01 cents, down from 6.57 cents a year earlier.

Net debt at period end totalled $596.4m, up from $559.3m, with unrestricted cash and bank facilities being $147.3m, down from $181.3m.

As at 31 December, the Group’s SA bank facilities remained undrawn.

On the operational front, Petra Diamonds reported a lost time injury frequency rate of 0.22 for the six month period, compared to 0.16 in the first half of the prior year.

Production was up 3% to 2,070,240 carats, while the board explained that absolute costs remained “within expectations”, despite inflationary pressures.

Its operational capital expenditure, excluding borrowing costs, were down 35% to $25.6m.

Looking ahead, the board said Petra’s operational delivery in the first half placed the company on track to exceed 2020 financial year production guidance of around 3.8 million carats.

However, it did note that it had a slower start to the calendar year, particularly at Cullinan and on the back of the recent pit slump at Williamson.

“This will see production for the second half weighted towards the fourth quarter,” the board said in its statement.

“The extent of further load shedding in South Africa and its resultant impact on production also remains a risk.”

The company’s first tender of the second half in February was currently in the process of being finalised, with Petra reporting that the provisional results showed pricing on a like-for-like basis as being up marginally, compared to the prices achieved in the first half.

It said ‘Project 2022’ remained on track to deliver “significant” cash flow generation, reaching an annualised rate of between $50m and $80m.

“However, the operational cash flow benefits are being eroded by a weaker diamond market, due to the outbreak of the coronavirus, which has served to significantly reduce activity across the pipeline.

“In light of this continued market weakness, coupled with the impact of adverse product mix, the delivery of Project 2022’s cumulative cash flow target is expected to be delayed, resulting in the $150m to $200m being revised to $100m to $150m by June 2022.”

The delivery of Project 2022 benefits were expected to “materially contribute” from the 2021 financial year, and therefore the firm said it did not expect a significant change in net debt in 2020.

It added that the rand-dollar exchange rate volatility continued during the period, averaging ZAR 14.69 per $1.00, with some strengthening at period end, closing at ZAR 13.99 per $1.00.

Post-period end, the rand-dollar exchange rate had thus far been on a weaker trend, Petra added.

It said its forecasts indicated that the group was retaining sufficient liquidity from existing facilities, cash resources and operating cash flows to meet its liabilities as they fell due, for at least 12 months.

The lender group had reaffirmed its ongoing support of the company, and had waived the EBITDA-related covenant ratios associated with its banking facilities for the December measurement period, the board noted.

It said that, in light of the impact of the weakness in the diamond market on its operating results and cash flow position, Petra would continue “closely monitoring and managing” its liquidity risk, and would have further discussions with its lender group regarding further covenant resets or waivers.

Based on current forecasts and sensitivities, additional waivers were likely to be required for the June and December 2020 measurement periods.

The group said it was also still assessing its strategic options in relation to the maturity of its $650m loan notes in May 2022.

“Petra has delivered a strong operational performance in the first half, and we remain on track to achieve production guidance for the full year of around 3.8 million carats,” said chief executive officer Richard Duffy.

“Our priority now is to continue to drive operational improvements to optimise production and free cash flow, with the aim of reducing leverage levels against the backdrop of a challenging diamond market.”

At 1037 GMT, shares in Petra Diamonds were down 16.56% at 6.98p.