Petra Diamonds has chopped its forecast diamond production for the year to end-June by between 8% and 9% and also estimated that revenues will be 8% to 9% lower than market consensus meaning its financial results for the year are “forecast to be below market expectations.”
The unexpected announcement comes after CEO Johan Dippenaar predicted on April 24 – when he provided an update on third quarter production – that Petra remained on track to hit its production forecast for the year of around 4.4 million carats.
Petra reported flat production for the third quarter to end-March during which it mined 999,768 carats as output from tailings and open-pit operations at the Williamson mine in Tanzania and the Kimberley operations in South Africa were hit by “unseasonably high rainfall.”
The lower production level has implications for Petra’s debt covenants which was an issue raised by Investec Securities in February when it commented, “ we are concerned that the company may be running close to covenant limits.” Investec also flagged the strengthening rand against the dollar as “a challenge for the group which has limited capacity to absorb any further unexpected disruptions.”
But Dippenaar played this down in the market update released today stating, “with respect to the covenants relating to its banking facilities, the company has had initial constructive discussions with its lender group and is confident that the likely shortfall in the upcoming ratio measurement, arising from the lower production levels, will not present an issue.”
He said the lower estimated diamond output was “due to the slower-than-anticipated build-up of (the company’s) expansion programmes across its operations.”
But he added that Petra had now reached “an operational run-rate” which supports the production guidance of around 5 million carats for the financial year to end-June 2018.
Dippenaar said both mills and crushing circuits had been commissioned at the new Cullinan plant with the first mill and crushing circuit running successfully for more than a month.
