Debt-burdened Petra up for sale
SA-focused Petra Diamonds has put its entire business or parts of its assets up for sale as a $650m (R11.25bn) debt repayment looms in May 2022. The global diamond industry has been hit hard by the coronavirus pandemic, which has dried up buying of jewellery, leading to low demand for rough diamonds and shrinking mining companies’ revenue streams.
SA-focused Petra Diamonds has put its entire business or parts of its assets up for sale as a $650m (R11.25bn) debt repayment looms in May 2022.
The global diamond industry has been hit hard by the coronavirus pandemic, which has dried up buying of jewellery, leading to low demand for rough diamonds and shrinking mining companies’ revenue streams.
Petra is a major producer of SA diamonds alongside De Beers. It started a strategic review of its business on March 27, the day SA’s government ordered an economic lockdown to prevent the spread of the coronavirus.
“Pursuant to this strategic review and in order to assess all strategic options to maximise value to its stakeholders, the board of Petra Diamonds announces today that it has decided to seek offers for the company, or for parts of the business, or assets of the Petra Diamonds group,” it said.
No such offers have yet been received, the Londonlisted company said, adding that if any party were interested it should contact its adviser, Rothschild & Co.
Petra had to secure a “forbearance” agreement with the holders of the $650m debt after it failed to pay interest in May. The agreement meant the holders of the notes would not accelerate terms of the debt.
Management under the leadership of former AngloGold Ashanti mining veteran Richard Duffy had put in place a plan, called Project 2022, to focus on cash flow and to position the company to tackle the $650m notes due for payment.
However, weak rough diamond demand and prices, coupled with a less than optimal mix of diamonds coming from its mines, meant it had to knock $50m off its cumulative cashflow target.
After the target revision, Petra intends to reach between $100m and $150m of free cash flow by June 2022.
Petra noted at its interim results presentation that it has completed peak funding on its expansion programmes at its mines in SA, meaning it should start generating cash to repay debt rather than incurring more expenditure.
It has three mines in SA and one in Tanzania.
Revenue for the six months to end-December 2019 was 6% lower at $194m because of a weak market for diamonds. This was before the lockdown in SA started and underground mines were shut until their partial reopening in April and full restart in June.
It reported an after-tax loss of $10m compared with a $58m loss in the same period in 2018.
Diamond output for the six months was steady at 2-million carats. At the end of December, it had an inventory of nearly 1-million carats of unsold diamonds that it valued at $85m then.
The two primary assets in Petra are its Finsch and Cullinan underground mines in SA, which generate nearly 90% of diamond output and threequarters of its revenue.
In the most recent update, Petra noted that in the March quarter its revenue had dropped by a third to $91m as the pandemic swept across the globe.
AFTER THE TARGET REVISION, PETRA INTENDS TO REACH BETWEEN $100M AND $150M OF FREE CASH FLOW BY JUNE 2022