South African gem miner Petra Diamonds (LON: PDL) has been facing pressures over its balance sheet after investing heavily in a new round of infrastructural expansion. With share prices falling drastically, the company is attempting to change this ongoing decline through a variety of means. Today the company announced they had appointed veteran gold miner Richard Duffy as CEO, a corporate executive who has held many finance positions in the mining industry.
Petra’s stock tumbled 30 percent in 2018 as the company cut borrowing after heavy investments made into its South African infrastructure. With diamond prices continuing to drop below the historical annual average, the company has been struggling to operate profitably. Currently, the company has $559 million of net debt that needs to be paid off alongside a 6.4 decrease in earnings, according to Reuters.
“The focus to generate free cash flow remains paramount for the company,” said former CEO Johan Dippenaar, whose departure was announced back in September. While the departing executive believes the company has delivered “solid production” there is still much room for improvement, especially regarding how the company manages its internal finances.
Back in January, shares of Petra Diamonds dropped ten percent after reporting lower-than-expected revenues for the second half of its 2018 year. Analysts at RBC Capital Markets at the time said that “the significantly lower realizes Cullinan pricing and the impact on cash flow generation sees us take renewed caution,” referring to their flagship South African mine as prices for its diamonds reached new-historic lows. The bank ended up downgraded its recommendation of the stock. In response to the new hire, however, the bank would describe the new CEO as a “very solid hire.”
In response to the news, shares of Petra Diamonds increased by around eight percent. Diamond prices themselves, however, have largely declined over the past few months, with many companies expressing worries that if prices decline even further, many struggling junior minors could go out of business with many (such as Petra Diamonds) being straddled with significant debt. Speaking at a Global Diamond Roundtable held earlier in February, Firestone Diamonds CEO Paul Bosma would describe the precarious situation diamond miners find themselves in. “If the price sticks at $75/carat for another two years then ourselves, Petra Diamonds, Stornoway and Mountain Province are all going to be in deep trouble because we all have debt and we are all just surviving at current prices.”
Petra Diamonds Company Profile
Petra Diamonds Limited is an independent diamond mining company and supplier of rough diamonds to the international market. Its segments include Mining and Exploration. Mining segment includes the extraction and sale of rough diamonds from mining operations in South Africa and Tanzania. Exploration segment includes the exploration activities in Botswana and South Africa.
Its portfolio includes over four underground kimberlite mines, an open cast kimberlite mine and tailings retreatment programs. Its mines include Finsch, Cullinan, Koffiefontein and Williamson. It has a resource base of approximately 312 million carats (Mcts). Cullinan ore body contains a diamond resource of approximately 194 Mcts. Koffiefontein mine produces white stones. Kimberley Underground operation comprises three kimberlite pipe mines: Bultfontein and Dutoitspan (serviced by the Joint Shaft and the Joint Shaft plant), and Wesselton (serviced by the Wesselton Shaft and the Wesselton plant). – Reuters