PETRA Diamonds would be free cash flow negative in the short-term, especially as the diamond market remained volatile, but a restructure of its capital projects would deliver a smoother capital profile, the UK-listed firm’s CEO Richard Duffy said.
“We are focusing on optimising our cost and capital,” Duffy said in an interview at the Mining Indaba conference in Cape Town. “On the capital side we should expect an approach where we have a smoother capital profile so it is more predictable because of the volatility in [diamond] prices.”
Asked if the firm would be cash flow negative in the current financial year, he responded: “Our intention as a business is to be net cash generative through the cycle. Where we are now it is unlikely we will be able to do that immediately. Certainly that is the intention”.
Petra reported negative free cash flow of $67m in its 2023 financial year. Since then, diamond prices have deteriorated. De Beers halted obligatory sales at the end of last year to ease pressure on its preferred buyers and cut prices heavily in the first sales cycle of 2024. Commenting on those sales it prepared the market for a slow recovery.
“We share that view,” said Duffy of diamond prices. China’s economy would not “come storming through any time soon while the midstream’s ability to hold significant inventory was “challenged” by high interest rates. “There will be volatility in the short term but in the longer term we think the fundamentals are still supportive.”
In 2022, Duffy said there was a structural deficit developing in the diamond market. Against this background, he announced a $67m capital plan aimed at increasing Petra’s output by about 1.3 million carats annually. These plans were halted last year.
Petra’s last statement is it would update its capital plans towards the end of the current 2023/24 financial year. Said Duffy today: “If we defer capital projects out six months just to shift them out six months it doesn’t make any sense.:
At the Cullinan mine Petra deferred the C-Cut extension project until the end of June 2024 and also partially deferred the CC1E project until the end of June 2024. At Finsch, the 3-level SLC extension has been deferred until the end of June 2024 although the 78-level Phase 2 project will continue as planned to bring these production areas on line during the 2024 financial year.
“It’s about getting the balance right so there are less peaks and troughs.” The company has also targeted cash savings of $75m by end-June this year.
Petra said in an update in January it was on track to meet the lower end of its production guidance of 2.9 million carats to 3.2m carats for the year to end-June 2024.