Petra Diamonds (PDL) has started its 2020 financial year much as it finished the last: hoping for an improvement in the struggling diamond market. Revenue was not helped by production performance in the September quarter, with grades down at its two major operations, Finsch and Cullinan.
Even with higher throughput keeping the period’s production flat on the previous quarter, revenue fell 23 per cent to $61.6m (£47m) on the low prices and a “poorer product mix”.
New chief executive Richard Duffy, who took over from Johan Dippenaar in April, maintained it was a supply and demand issue rather than a long-term trend away from diamonds as jewellery. “The jewellery market saw growth of around 4 per cent last year, so there is growth at the jewellery end,” he said. “It's not showing in terms of diamond prices just because of the surplus inventory.”
Major diamond players Alrosa and Anglo American-owned De Beers have limited supply in recent months in an attempt to improve prices, although RBC forecasts De Beers’ production to dip this year to 29 million carats (mct) before climbing back over 30mct next year. Mr Duffy said there were “early signs of modest improvement” in the sector.
Another weakness for Petra is its net debt position, which stands at $593m, putting gearing at 182 per cent. The focal point of the miner’s debt is a $650m bond expiring in May 2022. The company has ruled out raising cash to investors’ relief but a refinancing is on the cards. Mr Duffy said an effort to ramp up cash flow by increasing throughput would put Petra in a better position to refinance its debt, while also paying it off faster than expected. Yet for this to work diamond prices have to improve.
