Petra Diamond Shares Recover After Major Drop

- July 30th, 2019

Shares of diamond miner Petra Diamond have begun to rebound after slipping by almost 50 percent last week.

Shares of London-listed diamond producer Petra Diamonds (LSE:PDL) have begun to rebound after slipping by almost 50 percent last week.

The company tumbled after the release of its 2019 fiscal year results and 2020 guidance. The report notes a 2 percent decrease in yearly output, from 3,793,799 carats in 2018 to 3,736,847 carats in 2019.

The recent uptick in share value has been attributed to the release of a company statement on Tuesday (July 30) morning.

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The statement was an effort to reassure and ease stakeholders, while also explaining Petra’s Project 2022 action plan and target.

“The trading update introduced Project 2022, an initiative that will identify and drive efficiencies and improvements across all aspects of the business to enable the company to deliver an initial target of US$150 to 200 million free cashflow over a three year period,” the company said on Tuesday. “The company is not considering raising equity to refinance the bond.”

In addition to a decline in output, Petra’s revenues were down 6 percent year-over-year in 2019. In 2018, the company brought in US$495.3 million, compared to US$463.6 million this year.

According to the diamond miner, the reductions were the result a weak global market.

“Petra delivered solid results in both a difficult market and during its continued transition from a period of high capital investment to a steady state operational phase,” CEO Richard Duffy said last week.

Shares fell some 33 percent following the release of the yearly report on July 22, before sliding further.

Even so, despite facing sector-wide challenges, Petra has made several significant discoveries this year. In early March, the diamond miner unearthed a massive 100.83 carat white diamond as well as an extremely rare 6.12 carat blue diamond.

Less than four weeks later, an enormous 425.1 carat gem was recovered from the company’s Cullinan mine in South Africa. The impressive stone is the third largest diamond ever recovered by the miner.

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Petra isn’t the only diamond company encountering a challenging global market. Last week, De Beers reduced its production outlook by 2 million carats. The diamond major cited several factors, including a drop in jewelry demand, a glut of polished diamonds and financial pressure from banks.

Global oversupply could be short-lived once Rio Tinto’s (ASX:RIO,LSE:RIO,NYSE:RIO) Argyle mine closes sometime over the next two years.

The Australian mine is renowned as one of the only sources of pink and red diamonds in the world, although it also produces colorless stones. Once shuttered, roughly 14 million carats of diamonds will be removed from the market annually with no comparable source to make up the shortfall.

In the meantime, Petra is planning for the long haul, as the company reiterates in Tuesday’s release.

“The focus in the short term is on driving efficiencies across the business through Project 2022 to provide a stable, consistent operating platform off which to drive improvements, supported by an appropriate organisational structure and cost base to enhance our cash flow generation and significantly reduce our net debt,” the announcement reads.

Shares of Petra Diamonds were up 18.07 percent on Tuesday, trading at GBP 12.10.

Image courtesy of Petra Diamonds. 

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

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