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Weak Prices Dent Petra Revenue
Oct 23, 2019 9:27 AM
By Rapaport News
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RAPAPORT... Petra Diamonds’ revenue fell in the first fiscal quarter
amid a drop in the average price and a weaker product mix at three of its
mines.
Revenue dropped 23% year on year to $61.6 million for the
three months ending September 30, the miner reported Monday. Sales volume
slipped 4% to 603,626 carats, with the average selling price down 20% to $102
per carat.
The sales product mix was weaker than analysts’ expectations, with
the absence of large stones impacting prices, investment bank Berenberg noted. The average prices at the Finsch and Cullinan deposits were also lower
than the bank had predicted.
“Management believes that [the] mix will improve and points
to special-diamond recovery as an upside, but how long this takes is a key
question,” Berenberg added.
Petra’s diamond prices were down 4% on a like-for-like basis
versus the previous quarter, it said. “The rough-diamond market remains quiet
ahead of the start of the seasonally busier retail period,” Petra explained.
“There was a slight increase in activity in the Indian manufacturing centers
ahead of the Diwali holiday, however polished prices and exports remain under
pressure, with softer demand and lower prices for rough diamonds.”
Petra is counting on the sale of a 20.08-carat blue diamond,
which it will offer at tender in November, to help boost revenues, said Richard Duffy, the miner’s CEO..
Berenberg believes the stone will fetch about $13 million at
tender, or $650,000 per carat, while Shore Capital has valued it between $13
million and $15 million.
Production for the period grew 1% to 1.1 million carats. The
increase in output in September, combined with the drop in sales, led to a rise
in the company’s inventory, which grew to 1.1 million carats from 970,620
carats during the same period last year.
Meanwhile, the company’s debt increased to $592.8 million as of September 30, from $564.8 million on June 30, which it attributes to holding only one tender
during the quarter. To pay off the debt, Petra has launched Project 2022, a
three-year plan to save $150 million to $200 million by implementing operational
efficiencies, it explained. However, the lower diamond prices may make this
difficult, Berenberg noted.
“Should prices take longer to improve, we believe it will
become more of a challenge for management to meet [the] free-cash-flow-generation
targets,” the bank observed.
Petra is on track to deliver its production guidance of 3.8 million
carats for the full fiscal year ending June 30, the miner added.
Petra operates the Cullinan, Finsch and Koffiefontein
underground mines in South Africa, and the Williamson open-pit facility in
Tanzania.
Image: An aerial view of the Cullinan mine. (Petra Diamonds)
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Tags:
Berenberg, Cullinan, Finsch, Koffiefontein, petra, Petra Diamonds, Rapaport News, Richard Duffy, Shore Capital, Williamson
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