Petra Diamonds looking to live within its means | Fin24

Petra Diamonds looking to live within its means

Jul 26 2018 10:50
David McKay

The last two years have been a difficult period for Petra’s long-standing CEO Johan Dippenaar & Company. After years of driving for 5m carats of production annually from almost nothing, the company has now lowered its horizons.  

The reason is that the debt incurred in its odyssey of acquisitions and expansions has barreled out of control, and delivery on the ramp-up of Cullinan and Finsch – two former De Beers mines – has been sub-optimal. There was also a strengthening of the rand earlier this year, which represented something of a tipping point in terms of getting the debt lower.

The outcome was a hefty rights issue of some R2.2bn and the sale of Kimberley Ekapa Mining JV for about $16m in an effort to haul in debt and rid itself of the cash-consuming, high-cost operations. There are still delivery issues at Finsch and Cullinan, but Dippenaar has certainly taken out some of the pressure that saw the firm’s shares fall about a third on a 12-month basis. 

“We think the market is likely to react negatively to [the] announcement,” said RBC Capital Markets, referring to the release of Petra’s annual production update in which it lowered its 2019 financial year target to between 3.8m and 4m carats. It did. The share was sharply down towards the end of July. 

And while the “change of tack” was likely to add to questions in the short term, the bank has kept its “out-perform” recommendation on Petra shares, if only because the diamond market was improving, adding that the “... lower hurdles to jump in [the] 2019 financial year support a positive outlook”.  

The view of Dippenaar was that: “The future focus of the group will be on the continued optimisation of production volumes and cost structures across our portfolio in order to maximise cash generation.” That is corporate speak for living within one’s means. 

“We continue to like the growth and quality of the operations that Petra offers, but the company has struggled to meet all targets in recent years and may need to deliver some consistent quarters to support new investor interest,” said BMO Capital Markets in a recent note on the diamond company. 

“The outlook for diamonds is pretty attractive at the moment and Petra remains one of the best-placed companies to capitalise on a rising diamond price environment,” it said.

This article originally appeared in the 2 August edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

petra diamonds  |  diamond  |  mining

Why dividends are key

2019-04-16 13:04