Petra Diamonds mulls its future after returning to profit

Despite a watershed year in which Petra Diamonds swung strongly back to profit, the diamond miner has discontinued operations at its Williamson mine in Tanzania, while the fate of its Koffiefontein operation in the Free State now also hangs in the balance amid a continued asset review. 

The Jersey-headquartered company, listed on the London Stock Exchange, owns three diamond mines in SA and one in Tanzania. On Tuesday, it reported a 65% surge in revenue to $402.3m (R5.8bn) for the year ended June 2021, and net profit of $196.6m, from a $223m loss in the previous year .

Petra’s completion of major capital restructuring coupled with strong sales and improved market prices saw it reduce net debt by roughly two-thirds, from $693.2m in June 2020 to $228.2m in June 2021.

Notably, the sales from exceptional stones made their highest contribution to revenues yet, jumping to $62m, up from $14.9m in 2020, thanks to a number of exceptional blue and white diamonds produced from Petra’s Cullinan mine.

Among these record recoveries was a 39.34-carat blue diamond, which was sold for $40m and is the most valuable single diamond sold by Petra. At $1m a carat, as was the price realised for the stone, Petra said this was thought to be the highest per carat price for a rough diamond achieved. 

Cullinan delivered a record performance, bringing in $250m in revenue. Petra also highlighted the successful conclusion of a three-year wage agreement with the National Union of Mineworkers.

“We enter FY 2022 [financial year 2022] with some momentum from a considerably strengthened balance sheet, ongoing optimisation of our asset base and a positive outlook for the diamond market,” said Petra Diamonds CEO Richard Duffy.

The company announced that the board has decided to review its strategic options at Williamson in Tanzania, and the asset has therefore been classified as an asset held for sale and has been reflected as a discontinued operation in financial results.

The mine is operated by Williamson Diamonds, which is 25% owned by the government of Tanzania and 75% owned by Petra. The mine was on care and maintenance for financial year 2021 because of a dip in the diamond market.

The company is now in talks with the Tanzanian government for an agreement that will add stability to the operation but is not a prerequisite to the restart of the mine, which Petra Diamonds said it is now mobilising to do.

Group production for the year was negatively affected by production challenges at the Finsch mine in the Northern Cape and Koffiefontein in the Free State, Duffy said. The company was confident that re-engineering projects under way will lead to improved production and margins at both operations during the 2022 financial year.

Having first started mining 140 years ago, Koffiefontein is a smaller and older mine that has brought high value production for the group but now only has a few years of life left and is incurring losses. 

The re-engineering project at Koffiefontein would determine the asset’s future, Duffy said.

“We are not in the business of running assets that don’t generate value,” he said. “This is really a step to finalise a position on Koffiefontein — that’s why we are going through the re-engineering exercise to finally determine what value we think we can get from the assets.”

In terms of outlook, Duffy said global diamond inventories have continued to come down and market prices have improved. “The market is generally in a good place and we would hope to see that support continue going forward, even though we may not see the same rate of increase that we saw in recent months,” he said.

steynl@businesslive.co.za