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Petra sells record $60m of 'exceptional stones'

A hard few years for the diamond business looks to be coming to an end, although debtors not shareholders are now the key beneficiaries
July 21, 2021

One big stone can make a huge difference to a miner’s year. For Petra Diamonds (PDL), which has struggled with its debt load, Covid-19 restrictions and difficult mines, the discovery of a 39-carat blue diamond in April was a cherry on top in a first half performance that saw it sell a record $60m worth of “exceptional stones”. 

IC TIP: Hold

That does not include the $40m from the blue stone, which is Petra’s highest-value stone sale ever, as it was sold this month. 

Petra's shares rose more than 10 per cent on the trading update, reaching 1.8p. 

But the first-half turnaround has taken place in the shadow of a restructuring that handed debtors 91 per cent of the company through a debt-to-equity conversion, which was also used to take on more loans.  

Petra shares were trading over 40p at the start of 2019 but a weaker diamond market, high debt levels and operational troubles saw its share price tumble to 1.2p in the second half of last year. 

The improved first-half performance comes as the diamond market returns to some strength. Anglo American (AAL), which owns De Beers, said on Tuesday there was “strong demand for rough diamonds” from the midpoint of the supply chain, the cutting and polishing centres. This is despite the Covid-19 impact on Indian demand, as the country is a key demand driver for diamonds. 

De Beers’ last ‘sight’, as it calls its periodic auctions of rough diamond lots, was well ahead of the equivalent sight in 2019, with $470m in sales compared to $391m two years ago. Increasing interest in jewellery in the US and China drove “strong demand for rough diamonds” during this sight, De Beers chief executive Bruce Cleaver said. 

It hasn’t all been sparkles for Petra this year. The miner has agreed to pay £4m to a group of people who say security forces and police at the Williamson mine in Tanzania killed and seriously injured people on the mine site. 

There was no admission of liability alongside the payment but company chair Peter Hill said Petra regretted “the loss of life, injury and mistreatment that appears to have taken place around the mine” because of third-party security guard actions. 

An internal investigation by a board subcommittee found mine management was aware of the incidents over a period of years, which NGO RAID said had resulted in 10 deaths, but the board did not know.

Separately, Petra is negotiating with the government of Tanzania around a seized parcel of 71,654 carats of diamonds from 2017 from Williamson and a VAT repayment, which it expects to have resolved by early next year. Williamson has been on care and maintenance for over a year because of the weak diamond market. 

We have been bearish on Petra because of its debt load and operational issues. These look to have improved and the diamond market is getting stronger, and the big finds certainly help the balance sheet. Move to hold.  

Last IC View: Sell, 1.7p, 20 Oct 2020