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(Alliance News) - Shares in Petra Diamonds Ltd fell Monday as it cut cash flow targets amid a weak diamond market, which has been compounded by coronavirus.
Petra is also likely to need further support from lenders, it warned, in the form of waivers on banking covenants. Shares were 14% lower in early trading at a price of 7.21 pence each.
More than 70,000 people have been infected by the epidemic in mainland China, which started in central Hubei province and has spread across China and to other countries. It has claimed 1,770 lives and prompted the closure of many schools, entertainment venues and large-scale events across China.
Petra currently has a target of delivering cumulative cash flow of USD150 million to USD200 million by June 2020, but has now reduced that target to USD100 million to USD150 million.
The diamond miner said the plan is on track to "significantly" increase cash flow generation, reaching USD50 million to USD80 million currently.
"However, the operational cash flow benefits are being eroded by a weaker diamond market, due to the outbreak of the coronavirus, which has served to significantly reduce activity across the pipeline," Petra 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."
Petra has enough liquidity to cover operations for the next 12 months, but added: "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."
As of December's end, Petra had net debt of USD596.4 million, 6.6% higher than the figure a year earlier.
The warnings came amid financial results for the half-year to December, showing a 6% fall in revenue to USD193.9 million due to a fall in the price of rough diamonds. Production rose 3% to 2.1 million carats, and absolute costs met expectations despite inflationary pressure.
Petra already had released revenue and production figures at the end of January.
Petra's pretax loss narrowed to USD13.2 million from USD20.7 million the year before, it said Monday, due to lower costs and the non-repeat of USD14 million of foreign exchange losses.
The company said the first-half operational performance put it on track to beat full-year production guidance of around 3.8 million carats. However, calendar 2020 has started more slowly at both the Cullinan mine in South Africa and Williamson in Tanzania.
Production will be weighted to the fourth quarter, Petra said, and power cuts in South Africa remain a threat to output.
"Petra has delivered a strong operational performance in the first half and we remain on track to achieve production guidance for the full year of around 3.8 million carats," said Chief Executive Richard Duffy.
"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."
By George Collard; georgecollard@alliancenews.com
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