Petra continues to struggle at Cullinan

Petra Diamonds, a major source of South African diamonds, reported an increase of net debt despite declining capital expenditure, higher production and improved revenue.

Petra, which is listed in London and has appointed AngloGold Ashanti and Anglo American mining veteran Richard Duffy as CEO, has struggled to bring its Cullinan mine to account.

Petra’s net debt increased to $559m by the end of the six months to end-December from $521m in its financial year to end-June 2018.

“The reduction in Petra’s net debt remains a priority,” said CEO Johan Dippenaar in his final results presentation after 14 years with the company.

“However, should product mix and pricing remain at the levels achieved during the first half, the company expects its net debt position at June 30 2019 to remain largely in line with the balances as at December 31 2018,” he said.

This forecast assumed payments to its empowerment partner’s of $25m, no further disruptions to diamonds sales from the Williamson mine in Tanzania, and the strong operational start to the second half of the year continuing, he added.

The second half of Petra’s financial year is usually a period of improved sales and prices.

However, the six months to end-December were marked by low prices and weak demand for lower-value rough diamonds, something that hit the Cullinan mine hard because of its mix of diamonds tending towards the smaller stones and the lack of large diamonds for which the mine is known.

Cullinan, a mine to the north of Pretoria, delivered the world's largest diamond at 3,107 carats in 1905.

The average price for Cullinan's diamonds fell to $96/carat during the interim period from $140/carat in the same period a year earlier. Petra estimated it had lost $10m from its revenue line because of the "ongoing volatility in Cullinan's product mix."

It lost a further $7m because of community unrest near its Koffiefontein mine and lower plant availability.

Petra increased group diamond output by 10% to 2.02-million carats, keeping it on target to produce between 3.8-million and four-million carats for the year.

“We continued to see production reaching consistent levels as Petra’s main underground expansion projects are nearing completion,” Dippenaar said, noting the two largest mines in the company which had undergone hefty growth programmes, the Finsch and Cullinan mines, were continuing to ramp up production.

Petra’s revenue increased 8% to $207m because of higher production. Its capital expenditure fell by 41% to $41m as the big projects reached conclusion.

“Of more concern to us, however, is the continuing rise in net debt despite capex coming down,” said Yuen Low, an analyst with Shore Capital in the UK, noting the income statement was “not particularly pretty” despite being an improvement on the same period a year earlier.

Petra recorded a net loss of $58m compared to a $118m loss the year before, which included a nearly $40m loss on the sales of its Helam mine and the Kimberley joint venture stake.

seccombea@businesslive.co.za