Petra Diamonds loses its sparkle after H1 update

Shares in Petra Diamonds lost their sparkle on Monday as the company said that rough diamond prices from its flagship Cullinan mine in South Africa dropped.

In an update for the six months to 31 December 2018, Petra said production was up 10% to 2,019,147 carats as it backed its full-year production guidance of around 3.8-4.0 million carats.

Revenue in the first half was up 8% to $207.1m as the number of diamonds sold increased 15% to 1,736,357 carats.

During the half, rough diamond prices on a like-for-like basis fell by around 4% compared to the second half of the previous year as the company said the product mix, especially at Cullinan, yielded prices at the lower end of historical ranges.

Rough diamond prices at Cullinan fell to $96 per carat from $140 the year before. Meanwhile, net debt came in at $557.2m versus $520.7m at 30 June 2018.

Chief executive officer Johan Dippenaar said: "Petra has delivered solid production in the first half of FY 2019 underpinned by a continued improvement in safety performance. We are seeing production reaching consistent levels while our focus remains on the delivery of operational and capex efficiencies in order to generate positive free cashflow and subsequent debt reduction."

RBC Capital Markets said Petra’s operational performance was generally in line, but at $94 per carat, Cullinan is not paying its way. It said overall production was just 1% below its forecast and a "good indicator that the company is getting a handle on the operations".

However, revenue of $107m was sharply below its forecast of $230m.

"The significantly lower realised Cullinan pricing and the impact on cashflow generation sees us take renewed caution," said analyst RBC, as it downgraded its stance on the stock to ‘sector perform’ from ‘outperform’ and cut the price target to 40p from 65p.

"We temper our forward base prices from Cullinan until we see evidence of a recovery, for which we remain cautiously optimistic."

At 0925 GMT, the shares were down 10.5% to 40.22p.