Petra to “consider options” as $650m bond looms and cash falls to “absolute minimum”

Cullinan, Petra Diamonds

PETRA Diamonds said it would “consider its options” as a bond repayment worth $650m advanced upon the company, and its access to cash teetered at the “absolute minimum” level of $40m.

“I can’t elaborate on our options,” said Richard Duffy, CEO of Petra Diamonds when asked during the firm’s interim results presentation about the group’s plans to tackle the bond which falls due in May 2022. “We do have some time ahead of the bond maturing and we have a range of options, as you would expect,” he said.

Shares in the company edged towards a new, all-time low today, falling 17% on the London Stock Exchange. This was following interim results that demonstrated a company fighting for its future amid misfortune and poor market conditions.

Petra reported an interim net loss after tax of $10m (2019: +57.9m) and a basic loss per share of 1.01 cents. Most worryingly, net debt climbed year-on-year to $596.4m from $559.3m despite generating positive cash flow.

The company said it had sufficient liquidity to remain in business for the next 12 months but unrestricted cash was at $40.1m as of December 31 which CFO, Jacques Breytenbach, said was at the “absolute minimum” before the company would be forced to dip into new, available bank facilities.

Efforts to boost cash flow by up to $150m to $200m annually in terms of the company’s Project 2022 programme, unveiled last year, had also been dealt a blow by the unfavourable diamond market. The cash flow generation would fall short of target settling at between $100m to $150m by that date, the company said.

Further to the optimisation initiatives of Project 2022, the company was on target to produce annualised cash flow generation of between $50m and $80m, even assuming the current diamond market, the company said

The diamond market is only just beginning to show an improvement after a disappointing 2019, but Petra said it was unable to capitalise owing to poor product mix from its Finsch mine in South Africa and Williamson in Tanzania.

The outbreak of the coronavirus (COVID-19) had also hurt the diamond market when the benefits of the Chinese New Year celebrations ought to have kicked in, dampening some of the optimism felt by the company in the third quarter.

“Activity across the diamond pipeline is therefore expected to reduce until the virus is brought under control,” said Petra. “We will continue to monitor the market closely and supply discipline by the major producers will remain a key factor in terms of maintaining supply/demand equilibrium,” it said.

Prices from the first tender of 2020 indicate that on a like-for-like basis, there was a marginal improvement on prices for the first half of Petra’s financial year.

Commenting on its liquidity, Petra said that it expected to have “further discussions” with lenders on whether they would waive the debt covenants as most likely required for the June and December 2020 measurement periods.

Lenders waived the covenants – put in place by the banks to protect themselves from borrower defaults – for the December 2019 measurement period. The covenant measures the group’s net debt in relation to the EBITDA.