Petra Diamonds warns over debt breaches
Shares fall despite reassurance the diamond producer has enough cash and loans to cover its liabilities
Disruptions of diamond production and sales in Tanzania and SA could cause London-listed Petra Diamonds to breach its two debt covenants at the end of 2017, but the company told investors it had enough cash and loans to cover its liabilities.
Monday’s warning to shareholders of the possible breach of two of its three maintenance covenants pertaining measurements of consolidated net debt and finance charges to earnings before interest, tax, depreciation and amortisation when measured at the end of December, drove Petra’s shares down 4%.
"We await the renegotiation of covenants and hope that the balance of risk is improving after December," Investec said, pointing out Petra was updating the market on its first quarter’s production on October 23, "which will provide an insight if all is on track to deliver targets".
Petra’s warning followed it flagging possible difficulties with the two covenants in its year-end results to end-June as the company ramped up production at the Cullinan and Finsch mines from fresh underground mining areas in SA.
However, it had a strike at three of its South African mines since and ran into difficulties with the Tanzanian government, which seized a parcel of diamonds destined for sale in Antwerp, leading to a temporary closure of the Williamson mine.
Petra said there was uncertainty about sales volumes from Williamson. It said it had enough cash on its books, cash flow from its mines as well as debt facilities to repay loans as they fell due.
"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]," said RBC Capital Markets analyst Richard Hatch.