Petra to renegotiate $20m bond liability

David McKay | Tue, 07 Jul 2009 10:02
[miningmx.com] -- PETRA Diamonds, the AIM-listed diamond producer, is to renegotiate terms of a R160m ($20m) convertible bond with major shareholder, Al Rajhi Holdings, amid “tight” cash flow conditions.

Petra Diamonds derives most of its production from South Africa, largely as the beneficiary of restructuring at De Beers from which it has bought the century-old Cullinan mine, as well as Koffiefontein. It shortly hopes to conclude the purchase of the underground section of the historic Kimberley diamond mine.

The convertible share, exerciseable at 130 British pence per share, is due for repayment on September 18. Petra’s shares are currently trading at 46p/share, well off its 12 month high of 117p/share. Al Rajhi Holdings currently owns 9% of Petra.

“The company is in discussions with Al Rajhi with regards to renegotiating the payment date and strike price of the convertible. The company will update shareholders as soon as an agreement is reached with Al Rajhi in this regard,” Petra CEO, Johan Dippenaar said in a trading update.

In an interview with Miningmx, Dippenaar declined to comment further as the company was in a closed period but added that Al Rajhi was not a "faceless banker" but was like "a joint partner" in the company.

Petra, which is scheduled to report its operating and financial results to end-June in September, lifted production to about 1.1 million carats in the year firmly placing the company on the map as a major diamond producer.

Commenting on finalisation of Kimberley underground from De Beers, Dippenaar said that transaction had taken longer than expected owing to its complexity, a fact related to mining conversions in terms of South African empowerment legislation.

The 1.1 million carat annual output, representing a five-fold, year-on-year increase by Petra, will be augmented as production from the Tanzania-based Williamson mine contributed in the new financial year. The Kimberley underground mine will also add to annual output pending completion of the deal with De Beers first signed in September 2007.

Petra said at the time that the Kimberley mine – which it agreed to buy for R78m – could provide it with gross revenues of $16m assuming output of 100,000 carats at an average full production of $160m per carat.

Promisingly, the diamond market had begun to lift its head after the credit crisis of 2008 and ensuing economic decline principally in the US, Europe and Japan.

Said Dippenaar: “Petra has since experienced a general price recovery in the region of 25%”. This follows an estimated 65% decline in rough (unpolished) diamond prices. “Whilst these remain challenging trading conditions, there are positive signs that demand for rough, and more specifically liquidity, is improving,” Dippenaar said.

RBC Capital Markets said in a research note dated March 31 that the improvement in diamond prices was not necessarily a trend. “Firmer trending rough diamond prices need growing offtake at the retail end in jewellery stores around the world … That appears still some way off,” the report said.

However, Dippenaar said that since April there had been "a degree of liquidity" in the markets and that the business mood had improved.

"The reduction in the supply of rough, in light of production cut backs from the major producers (notably De Beers and external sales by Alrosa) combined with the de-stocking of the diamond pipeline over the last few months, has assisted to increase deman in the rough diamond market," Dippenaar said.