Petra Diamonds shares crash 16% following weaker diamond market

Petra Diamonds Limited (LON:PDL) have seen their shares plummet as the firm issued a warning this morning.

Shares in Petra Diamonds trade at 6p (-16.67%). 17/2/20 13:17BST.

The diamond firm said that it has cut its cash flow targets as the diamond market has weakened.

The CEO commented: “Our financial results for H1 were impacted by the weaker diamond market, with rough diamond pricing on a like-for-like basis down ca. 10% from the comparable period, and down ca. 3% versus pricing achieved in Q4 FY 2019.”

Petra alluded to the ongoing global health problems, particularly with the coronavirus which have dampened consumer confidence and hindered trading.

It was notable that Petra said that they may need further support from lenders, in the form of waivers on banking covenants.

“In light of the impact of the weakness in the diamond market on the group’s operating results and cash flow position, the group will continue closely monitoring and managing its liquidity risk and will have further discussions with its lender group regarding further covenant resets and/or waivers.”

“Based on current forecasts and sensitivities, additional waivers are likely to be required for the June and December 2020 measurement periods.”

Petra has targeted a delivering cumulative cash flow of $150 million to $200 million by June 2020, but following issues with the coronavirus this has now been reduced to the $100 million to $150 million range.

Petra remained optimistic and said that it is on track with its plans to increase cash flow generation, and that the firm has already reached $50 to $80 million currently, however delays can be expected.

The firm said: “In light of this continued market weakness, coupled with the impact of adverse product mix, the delivery of Project 2022’s cumulative cash flow target is expected to be delayed.”

Notably, Petra recorded net debt of $596.4 million, which showed a 6.6% rise from the figure one year ago.

The warnings from Petra alluded to a 6% fall in revenue totaling $193.9 million, which the firm said was caused by a fall in the price of rough diamonds.

On a better note, production rose 3% to to 2.1 million carats which will please shareholders.

Richard Duffy, CEO of Petra, commented:

“Petra has delivered a strong operational performance in H1 and we remain on track to achieve production guidance for the full year of ca. 3.8 million carats. Our priority now is to continue to drive operational improvements to optimise production and free cash flow, with the aim of reducing leverage levels against the backdrop of a challenging diamond market.”

Pretax loss narrowed to $13.2 million following a loss of $20.7 million one year ago, which does show progress for the firm. This was due to lower costs and the non-repeat of $14 million of foreign exchange losses.

Petra concluded by saying that the first half operational performance has been strong and that this puts the firm on track to beat full year production guidance of around 3.8 million carats.

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