Buoyant jewellery sales help drive further easing in Petra Diamonds’ financial outlook

Richard Duffy, CEO, Petra Diamonds

PRESSURE on Petra Diamonds’ finances eased further in the first six months of its financial year ended December.

According to a trading update today revenue increased 49% to $264.7m owing to a marginal lift in production to 1.78 million carats and a vastly improved diamond market when compared to conditions in the first six months of last year.

Petra was also bullish on the prospects for its full-year free cash flow which would be at the “upper end” of its $100m to $150m forecast as set down in a business efficiency programme called Project 2020.

Project 2022 was also rolled out at Petra’s Finsch and Koffiefontein mines, the latter in order to arrest cash outflow. The question of whether Koffiefontein would remain in the group’s portfolio would be tackled at the firm’s interim results announcement scheduled for February 22 when the company would also address its strategy.

Uncertainty regarding the future of one troublesome asset was largely assuaged in December when Petra announced a reduction in its equity exposure to the Williamson Mine in Tanzania, a mine that until recently had been in mothballs.

Having earlier struck a deal with the Tanzanian government through which Petra agreed to drop its stake in the mine from 75% to 63%, it then announced the sale of 50% less one share of its remaining stake in Williamson Diamonds Ltd – the company that controls the Williamson Mine – to Tanzanian mining services contractor Caspian. The deal drops Petra’s indirect stake in the Williamson mine to 31,5% but Petra still retains control.

Petra said it continued to monitor illegal mining activities in the Williamson mining area. A total of 295 reported incidents of illegal incursions were reported in the half year.

Diamond prices on a like-for-like basis were 16% higher compared to the preceding six month period, the company said. Petra’s half year revenue was boosted by $77.9m worth of exceptional stones sales. A 39.34 carat blue diamond from the Cullinan mine fetched $40.2m, it said.

“The diamond market ended the calendar year in a strong state, with evidence of buoyant jewellery sales during the important festive retail period as consumers released pent-up demand for luxury items,” Duffy said.

The outlook for 2022 also looks to be promising.

According to a report today noted by Goldman Sachs, De Beers implemented one of its most aggressive diamond price increases in recent years owing to the recent high demand for uncut gems. Prices were increased 8% in its first sale of the year.

Commenting on the outlook Petra said that gross production guidance of between 3.3 million and 3.6 million carats would be met.

Petra also said that discussions with its South African lenders around the possible refinancing of the first lien debt continued in the second quarter with a view to concluding the discussions in the third quarter of this year.