Picture: PETRA DIAMONDS
Picture: PETRA DIAMONDS

Petra Diamonds has its back against the wall in discussions with lenders over more than R11bn of funding after the company’s full-year revenue fell by more than a third and the global market for rough diamonds remains weak and uncertain.

Petra has put itself or some of its assets up for sale after the Covid-19 pandemic disrupted its strategy to ramp up cash generation at its three mines in SA and one in Tanzania; cut costs; and position the company to cope with a $650m note payment falling due in May 2022.

“Despite our robust underlying business, significantly reduced revenues that are the result of a disrupted diamond market have required us to formally engage with our note holders and consider other strategic options to deliver a more sustainable capital structure,” said CEO Richard Duffy.

Petra will update the market on the outcome of talks underway with its note holders and SA lender group in the September quarter.

Petra’s revenue for its 2020 financial year to end-June slumped by 36% to $295.8m, “reflecting weaker prices during the period to February 2020, exacerbated by significant price reductions and major disruptions to the planned sales cycles following the outbreak of the Covid-19 pandemic”.

Diamonds sales fell by 23% to 2.9-million carats because of market disruptions and weak demand.

Petra cancelled its sales tenders for May and June because of weak demand and global travel restrictions.

The company’s difficult year was anticipated by the market. “It should surprise no-one that the financial year 2020 trading update from under-pressure Petra, which, last month, hoisted a ‘for sale’ sign over itself, made for torrid reading,” said Shore Capital mining analyst Yuen Low.

The sale of 574,000 carats after June for “just $36.4m, bodes poorly for financial year 2021 revenues”, Low said.

London-listed Petra agreed with its lenders in May to suspend debt-covenant measures for the period to end-June 2020, the end of the company’s financial year.

Petra had $693m (R11.4bn) of consolidated net debt, which included the notes, a deferred coupon on those notes of $23.6m, and bank debt, which is the metric used to measure its debt covenants.

Globally, the diamond market has been heavily disrupted by Covid-19, with a “voluntary ban on importing rough diamonds into the cutting and polishing factories of India in June, which has been extended for the majority of July, in addition to which many factories remain closed or operating at much reduced capacity”, Petra said.

World diamond production fell by 12% to 130.3-million carats during 2019 and the consequences of the pandemic are likely to worsen the downward trend, Petra said. The value of production dropped by 7% to $13.5bn last year.

Falling production

Adding to Petra’s difficulties in generating revenue and cash is the closure of its opencast Williamson mine in Tanzania, which was put into care and maintenance in April because of low diamond prices.

Williamson is Petra’s third-largest mine. In 2020 it generated just shy of 300,000 carats compared to nearly 400,000 carats in 2019. The mine had a slip of one of the sides of the pit, dropping 1.3-million tonnes of waste rock into the excavation in January, disrupting mining.

Petra spent $8m at Williamson during its 2020 financial year and will spend a further $7m in the 2021 one, with the money mainly going towards removing the waste rock, and building and extending tailings and slimes dams.

The core of its business is in SA, where Petra and De Beers are the largest source of local diamonds. Petra has three underground mines, the biggest of which are Cullinan and Finsch, where the company lost three weeks of production from the end of March when SA entered a hard lockdown.

The state allowed mines to return to full production from June. Petra has agreed with unions to run the mines around the clock to accommodate social-distancing and safety protocols at Cullinan, Finsch and Koffiefontein.

Petra’s diamond production fell by 7% to 3.59-million carats during the 2020 financial year, with the lockdown derailing record mined tonnage seen in the first nine months of the year.

seccombea@businesslive.co.za

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