Reduced demand from China cuts Petra share price by 20%
Coronavirus and resultant uncertainty makes consumers cautious about buying diamonds, says company
Bengaluru — Africa-focused miner Petra Diamonds says the coronavirus outbreak has hit Chinese demand for diamonds, forcing it to push back targets for cash flow and debt reduction, sending its shares more than 20% lower.
Petra has been fixing its balance sheet after spending years investing in its flagship Cullinan mine in SA.
On Monday it said the coronavirus outbreak had dented demand in the diamond market as stores were forced to close during the Lunar New Year holiday period in China.
The company said the effect of the fast-spreading virus would cause delays in Project 2022, its debt-reduction programme launched in 2019.
It cut its cash-flow target to $100m-$150m by June 2022, from its earlier range of $150m-$200m.
Petra reported a 11% fall in core earnings for the first half, but said its full-year production outlook was unchanged.
Coronavirus is a new threat to the diamond industry, which has already been hit by lower demand from China, the world’s second-largest market after the US, after a prolonged trade war and pro-democracy protests in Hong Kong.
“Activity across the diamond pipeline is therefore expected to reduce until the virus is brought under control,” Petra said.
China has seen retail stores shut and the Hong Kong and diamond auctions and industry events had been delayed or relocated.
Petra’s CEO Richard Duffy said consumers were cautious about buying diamonds in the uncertain climate, but said the company was working on increasing profit margins to offset any effect.
“That might have a small effect on the margins, but we already have a programme, Project2020, aimed at supporting the margins,” he said.
Apart from problems in China, analysts have blamed the increased importance of laboratory-grown stones for price weakness in the diamond market.
In SA, miners including Petra have had to contend with load-shedding because of problems at the heavily indebted state utility Eskom and Petra said disruption to production remained a risk.
Petra bought Cullinan in 2008, aiming to breathe new life into the mine renowned for yielding the largest rough gem diamond ever found — 3,106 carats — and being the world’s main source of rare blue diamonds.