Petra shares slammed as Cullinan fails to shine

Petra Diamonds recorded the largest decline on the London bourse after an interim production report showed an increase in debt and low prices for diamonds from its capital-intensive and newly developed Cullinan mine.

Petra, a major source of diamonds from SA, has redeveloped the Cullinan mine to access fresh ore with limited dilution from waste rock, but the full benefits of this investment have yet to be felt.

“The significantly lower realised Cullinan pricing and the impact on cash-flow generation sees us take renewed caution,” said RBC Capital Market’s analysts, who noted Petra’s general operational performance was “in line, but at $96/carat Cullinan is not paying its way”.

The concern was that the base price for Cullinan’s rough diamonds, excluding the special, large diamonds, would be lower than the company and the market were expecting, they said.

Petra’s shares fell 13% in London to 39p.

However, Petra’s executives tried to allay market concerns, saying there was firming of prices for small rough diamonds after they softened because of reduced demand in India during 2018, an issue flagged by De Beers CEO Bruce Cleaver a number of times during the year.

Petra CEO Johan Dippenaar said Cullinan’s average price for the full year to end-June 2019 was expected to be $120/carat, making the mine cash-flow positive.

Cullinan, which yielded the world’s largest diamond, has realised an average $140/carat over a decade. The 3,106-carat diamond was found in 1905 and cut into gems for the British crown jewels.

“During November and December demand for the lower-value small stones saw some recovery due to renewed seasonal demand and the replenishment of stocks by companies in the cutting sector,” he said.

Petra’s net debt rose to $557m from $521m in June 2018, with the company paying an advance of $21m to its empowerment partners, while revenue took a $10m knock from the “ongoing volatility in Cullinan’s product mix”.

A further $7m of revenue was forfeited during labour disruptions at the Koffiefontein mine.

Revenue for the six months was 8% higher at $207m, with sales of 1.7-million carats compared to 1.5-million carats in the same period a year earlier.

seccombea@bdfm.co.za