Petra Diamonds slashed its production forecasts yesterday and warned that a stronger South African rand would dent profits.
Shares in the London-listed miner tumbled to their biggest daily loss in 17 years after the company, which operates four former De Beers mines in South Africa as well as the Williamson mine in Tanzania, said that it expected full-year production of about 4.6 million to 4.7 million carats, down from a previous forecast of up to five million carats.
Petra also said that the rand, which has been lifted by the South Africa’s governing ANC electing the business-friendly Cyril Ramaphosa as its party leader, would inflate its costs in dollar terms, undermining overall profitability.
Like most commodities, diamonds are priced in US dollars. The company now expected its 2018 fiscal year earnings to be 10 per cent to 15 per cent below consensus forecasts.
The profit warning comes after a three-week strike at Petra’s South African mines and a dispute with the Tanzanian government prompted the company to raise fears about a potential breach of covenants in October linked with its $644 million of debts.
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Petra said that it had cut its production forecast because lower-grade diamonds were being extracted at its Cullinan mine in South Africa. Its shares fell by as much as 21 per cent at one stage, although recovered slightly to close down 18.5 per cent at 64¼p.
“Petra has a number of headwinds and while we like the longer-term story . . . in the near term we expect the shares to remain under pressure,” analysts at RBC wrote. “The company still has sufficient liquidity, but until we see a deleveraging on the balance sheet, financing concerns will continue to weigh.”
The group also reported a 1 per cent fall in revenues to $225.2 million in the six months to December 31.
Johan Dippenaar, chief executive, pointed to a 10 per cent rise in production to 2.2 million carats over the first half of the year, a six-month record.
Last year, Petra was forced briefly to halt mining in Tanzania after the country’s authorities seized a parcel of diamonds reckoned to be worth $15 million. The government claimed that it was being shortchanged by Petra, though the company denied this and noted that government officials provided provisional valuations at its mine.