Petra Diamonds tarnished by earnings decline and slow start to 2020

PLC () lost some of its shine on Monday as the firm saw earnings decline in its first half and warned that it had made a “slower start” to its current year.

For the six months ended 31 December, the miner reported adjusted earnings (EBITDA) of US$67.2mln, down 11% on the prior year, while revenues slipped 6% to US$193.9mln.

READ: Petra Diamonds downgraded by Citi as debt reduction drags

Production, however, rose during the year by 3% to around 2.07mln carats, but a decline in diamond prices caused the group’s operational free cash flow to fall to US$13.7mln from US$18.5mln.

Looking ahead, Petra said the new calendar year “had a slower start” than expected which would see production for its second half weighted towards the fourth quarter, although it said production for its current financial year was still expected to exceed guidance of 3.8mln carats.

The slower start was attributed mainly to Petra’s Cullinan mine in South Africa, while the company also warned that the diamond market was being impacted by the coronavirus outbreak, which in turn was eroding its cash flow.

As a result, Petra said its cumulative cash flow for the end of the year will be between US$100mln-US$150mln compared to previous estimates of US$150mln-US$200mln, adding that it was currently monitoring its liquidity risk.

“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”, said Petra chief executive Richard Duffy.

In a note, analysts at house broker Peel Hunt said the lower cash flow target was still in line with their base case estimates and retained their ‘buy’ rating and 18p price target on the Petra.

The analysts said they thought the market was placing “little value on the benefits of Project 2022”, Petra’s strategy to increase its net free cash flow to around US$200mln over the next three years to cut its debt pile, and that any sell-off in reaction to the revised cashflow target should be seen as a “buying opportunity”.

Petra shares slumped 15.8% to 7.1p in mid-morning trading.