Petra Diamonds aims for positive second-half cash flows
Debt and weak diamond prices have hit the share price hard, but things should stabilise soon, says the new CEO
London — African miner Petra Diamonds, which has high debt levels, aims to be cash-flow positive in the second half of the year and will then be able to consider future developments, its new CEO said on Monday.
The company’s share price has fallen 55% since the start of the year as weak diamond prices weighed and Petra grapples with debt following years of capital expenditure to upgrade its mines.
On Monday, the company reported lower output in the quarter ended March 31, as an upgrade of operations at one of its mines fell behind schedule, but also said it sees signs that diamond prices are recovering.
CEO Richard Duffy, who took office at the start of the month, said his short-term focus was “on stabilising the operations as we transition from a stage of high-capital investment”.
The company would be on track to consider future developments, he said, once it has delivered free cash flow and cut net debt, which was about 3.3-times EBITDA (earnings before interest, tax, depreciation and amortisation) at the end of last year, versus a goal of 2-times.
“I’m two weeks into the job,” Duffy said in a maiden round of media interviews, when asked about strategy. “We expect to announce strategy towards the end of the calendar year.”
On Monday, Petra’s share price was 0.2% lower by 12.13pm.
A new section at Petra’s flagship Cullinan mine in SA has the potential to be rich in high-quality stones, the company says. In March it said it had found a 425-carat diamond, which it plans to sell later this year.
Edward Sterck, analyst at BMO Capital Markets, which rates Petra “outperform”, said a pick-up in special diamond recoveries was “the significant catalyst that investors have been waiting for”.
The company meanwhile is in talks with its SA lenders on new terms, which it expects to finalise by the end of the month.
It is also negotiating with the Tanzanian authorities over a parcel of diamonds seized in September 2017, in a crackdown on foreign mining companies as the government seeks more revenue from its minerals.
Petra’s Williamson mine in Tanzania delivered a 21% increase in year-on-year output, helping to offset the impact of delay in an upgrade at SA mine Finsch.
“We’re continuing to engage with the authorities. It’s difficult to talk about time, but we are having constructive conversations,” Duffy said.