Petra gives mind to Williamson reopening after diamond prices restore business case

Truck transporting ore at Petra's Williamson mine. Source: Petra Diamonds

DIAMOND prices had improved sufficiently to support the reopening of the Williamson mine in Tanzania, said Jacques Breytenbach, CFO of Petra Diamonds which operates the mothballed mine.

“On a like-for-like basis, we are confident Williamson would be cash generative,” said Breytenbach in response to questions during a presentation of the firm’s third quarter trading update published earlier today.

Williamson mine was mothballed in April last year owing to “… an unprecedented depressed market environment”. Its shuttering, however, also came amid a dispute with the Tanzanian government, then led by the late John Magufuli, which embargoed a parcel of diamonds it said was near twice the value of the $15m imputed to them by Petra.

Petra is also seeking VAT arrears from the Tanzanian government.

Breytenbach said Petra was “pushing to complete agreements” with the Tanzanian government in the fourth quarter as Williamson’s cash balance was running low. The mine was burning $800,000 to $850,000 a month in cash. Its restart to full production could take up to three months requiring $20m in working capital.

Said Richard Duffy, CEO of Petra Diamonds: “We expect to address outstanding issues on the arrear VAT refunds and the unsold parcel [of diamonds]. A resolution would be positive as that wouldn’t see then a cash lock-up”.

There have also been reports of human rights abuses allegedly perpetrated by security forces at the Williamson mine. Given the mine’s mothballing, there is susceptibility to illegal mining activities that Petra said it was investigating as part of a study into the human rights allegations. The publication of the report is imminent.

Third quarter revenue was 16% higher, increasing to $106m owing to improved diamond prices. Petra’s revenue year-to-date was $284.2m largely in line with 2020’s revenue at the same stage of the financial year.

The company reported unrestricted cash of $139.8m as of March 31 with undrawn banking facilities available of $10.8m, and net debt of $290.7m compared to $700.4m end-December by dint of a recapitalisation through the issue of shares.

However, Petra reported a significant diamond inventory of $75.5m as of March 31. This was lower than the $105m inventory end-December, but Breytenbach acknowledged the period from production cut-off to point of sale had increased to about 12 weeks from eight owing to Covid-19 restrictions on auctions.

“I would expect that [12 week backlog] for the calendar year, but we hope to peel that back about two weeks by this time next year,” said Breytenbach regarding the high inventory levels.

Third quarter production fell nearly a quarter to 704,498 carats on a year-on-year basis despite a relatively strong performance from Petra’s Cullinan mine. The decline was owing to heavy rainfall at Finsch which flooded workings and resulted in 43% lower year-on-year output, There was also an 18% decrease in production from Koffiefontein.

“It is not an exact science,” said Duffy when asked when production rates would be restored at Finsch. “It takes time for the water to dry.”