Petra Diamonds’ revenue fell in the first fiscal quarter amid a drop in the average price and a weaker product mix at three of its mines.
Revenue dropped 23% year on year to $61.6 million for the three months ending September 30, the miner reported Monday. Sales volume slipped 4% to 603,626 carats, with the average selling price down 20% to $102 per carat.
The sales product mix was weaker than analysts’ expectations, with the absence of large stones impacting prices, investment bank Berenberg noted. The average prices at the Finsch and Cullinan deposits were also lower than the bank had predicted.
“Management believes that [the] mix will improve and points to special-diamond recovery as an upside, but how long this takes is a key question,” Berenberg added.
Petra’s diamond prices were down 4% on a like-for-like basis versus the previous quarter, it said. “The rough-diamond market remains quiet ahead of the start of the seasonally busier retail period,” Petra explained. “There was a slight increase in activity in the Indian manufacturing centers ahead of the Diwali holiday, however polished prices and exports remain under pressure, with softer demand and lower prices for rough diamonds.”
Petra is counting on the sale of a 20.08-carat blue diamond, which it will offer at tender in November, to help boost revenues, said Richard Duffy, the miner’s CEO..
Berenberg believes the stone will fetch about $13 million at tender, or $650,000 per carat, while Shore Capital has valued it between $13 million and $15 million.
Production for the period grew 1% to 1.1 million carats. The increase in output in September, combined with the drop in sales, led to a rise in the company’s inventory, which grew to 1.1 million carats from 970,620 carats during the same period last year.
Meanwhile, the company’s debt increased to $592.8 million as of September 30, from $564.8 million on June 30, which it attributes to holding only one tender during the quarter. To pay off the debt, Petra has launched Project 2022, a three-year plan to save $150 million to $200 million by implementing operational efficiencies, it explained. However, the lower diamond prices may make this difficult, Berenberg noted.
“Should prices take longer to improve, we believe it will become more of a challenge for management to meet [the] free-cash-flow-generation targets,” the bank observed.
Petra is on track to deliver its production guidance of 3.8 million carats for the full fiscal year ending June 30, the miner added.
Petra operates the Cullinan, Finsch and Koffiefontein underground mines in South Africa, and the Williamson open-pit facility in Tanzania.
Image: An aerial view of the Cullinan mine. (Petra Diamonds)