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Petra Diamonds cancels spending plans as costs mount
Petra Diamonds is to put $60m (£42.7m) worth of spending on the backburner over the next three years as it focuses on paying down debt.
The South Africa-based miner has borrowed heavily over the last five years to expand its mines but it costs have been hit by a strengthening of the rand.
Jacques Breytenbach, chief financial officer, said it would now delay capital expenditure that had been pencilled in. “We will now have to spend that a bit later. We have to make sure that we have appropriate spending in the appropriate periods.”
With its debt pile standing at around $650m, the miner revealed it had struck a deal with its lenders to relax certain covenants in June and December, giving it some breathing space on its repayments.
However Mr Breytenbach admitted that “significant further strengthening of the rand will affect our liquidity”. The South African currency has been buoyed by the recent appointment of business-friendly Cyril Ramaphosa as president, ending the scandal-hit regime of Jacob Zuma.
Mr Breytenbach said political developments were “generally quite positive” and noted that South Africa’s Chamber of Mines, of which Petra is a member, had suspended a legal challenge to the government’s new mining charter that had been set to begin today.
Mining companies in South Africa had been up in arms about the new charter, which would impose new taxes and obligations around share ownership.
The Chamber said today that legal action had always been "a last resort, intended to get the parties to the table". "Ultimately, the new mining charter must be developed and resolved through inclusive negotiations," it said.
For the six months to Dec 31, Petra swung to a pre-tax loss of $95.2m from a profit of $51.6m. Most of this was due to a $118m impairment charge it took due to the higher costs at its operations and a writedown on the value of its lower-grade stones.
Petra’s revenue slipped fractionally to $225.2m, in part because it was unable to sell a parcel of diamonds worth $15m that was impounded by the Tanzanian government in a row over back taxes. Mr Breytenbach said talks over the release of the package were ongoing.
The company’s shares bounced 7.6pc to 73.95p as investors welcomed the easing of its debt covenants and the news it had enjoyed a 3-4pc rise in sale prices at its most recent diamond tender earlier this month.
The stock fell 50pc in 2017 but analysts at Barclays struck an optimistic note: “We believe the share price level as well as Petra's investment case look increasingly attractive, based on a combination of rising production, grade increases, falling unit costs and improving product mix.”
Petra also announced that Mr Breytenbach would join the board while its technical director, Jim Davidson, would retire this year. Mr Davidson was instrumental in the growth of the company, having worked with chief executive Johan Dippenaar since 1990. The pair led the establishment of Crown Diamonds, which merged with Petra in 2005.