Petra Diamonds Slumps Despite Restart in Tanzania

Petra reported disappointing preliminary results for the year ended June 30, 2017, including a 4.3-percent drop in profits.

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Petra Diamonds (LSE:PDL) saw its share price fall more than 7 percent on Monday (September 18) despite resuming operations at its Williamson mine in Tanzania after a four-day disruption.

The company reported disappointing preliminary results for the year ended June 30, 2017, including a 4.3-percent drop in profits.

Activity at Williamson was suspended last week after Petra was blocked from exporting a $15-million parcel from the mine. Authorities are conducting an investigation related to diamond valuation, and while the mine is now up and running again, the parcel has not yet been released for export; Petra says it continues to negotiate with the Tanzanian government.

In Monday’s release, the Johannesburg-based company also reported that its adjusted earnings fell 4.3 percent, to $157.2 million, for the 12 months ended June 30 of this year due to higher costs and a delayed ramp up in expansion programs. However, the company’s full-year revenue rose 10.7 percent, to $477 million, on the back of increased output.

Petra has left its production guidance unchanged between 4.8 and 5 million carats for the year ending on June 30, 2018. But that outlook depends on normal operations at Williamson, which the company owns in partnership with the Tanzanian government.

“We are watching things on a week to week basis,” Johan Dippenaar, CEO of Petra, said during a conference call. “But we won’t allow the mine to endanger the rest of the group.” Output from Williamson, the company’s only mine in Tanzania, accounted for 12.2 percent of Petra’s revenue in 2016 — that’s down 18 percent year-on-year.

“It has been a tough year for Petra and the situation at Williamson we hope will be resolved and less troubling than the challenges faced by Acacia,” Investec said in a note. The firm added that Petra will need to achieve “major deleveraging” in the second half of its financial year to meet its targets. “That should be just about achievable if the company suffers no misses or unanticipated challenges.”

Similarly, Jamie Campbell, an analyst at Panmure Gordon, said that while Petra looks like good value, “significant risks remain until the Williamson situation is resolved.”

On Monday, Petra’s share price closed down 7.65 percent in London, at GBX 78.36. The company has been on a downtrend since January, and has fallen 50 percent since the beginning of the year. 

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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