Member Info for Splendor

I am not one of the sceptics, but according to previous discussions the actual debt of usd430 million and related usd51million interest (rate around 10 pct) has raised some concern.
Maybe due to the historical events when the lenders diluted shares 9:1 when pdl defaulted it’s debt payments in 2020. That was a scary experience for some… and they could still be emotionel about that for fear of a repeat.
But: in contrast to 2020, net debt is now very low, cashflow very high, repayments happen according to plan - and interest rates are now being negotiated with a view to reduce further.
For actual Numbers, refer to the latest annual report for 2021 e.g. p33:
“Loans and borrowings:
The Group had loans and borrowings (measured under IFRS) at Year end of US$430.3 million (30 June 2020: US$769.0 million), comprised of the US$327.3 million Notes (includes US$11.3 million accrued interest and unamortised transaction costs of US$20.7 million) (30 June 2020: US$676.9 million), bank loans and borrowings of US$103.0 million (includes interest of US$0.1 million and unamortised transaction costs of US$1.7 million) (30 June 2020: US$52.1 million). Following the Restructuring completed in March 2021, the Company’s guarantees related to the BEE Partner debt facilities were US$nil (30 June 2020: US$40.0 million).”

My perspective: We have just had a great rise from the deep support level at 60 (and below). So, I would give it a few weeks from now, to see where we go from here.
As I mentioned before, resistance just below 90 is business as usual for the last year or so. So, what can lidt us further from here?
Mid Feb we have the earnings report for 22 H1. Also maybe a renegotiated debt framework with lower interest rates, as mgmt mentioned in their recent sales call. Furthermore, if we get an updated positive credit score (and maybe a large diamond or two?) it might just generate enough demand to break the 90 lvl…

For information: https://www.diamonds.net/News/NewsItem.aspx?ArticleID=68133&ArticleTitle=Petra%2bSales%2bJump%2bAmid%2bSupply%2bShortage

Well put: “hopeful that we will rise to results and may break into a new, higher, range of undervaluation”;-)

Hi Nelson: The bonds can be repaid before they mature in 2026, but at a cost.
So, if PDL finds and sells enough diamonds they can theoretically be debt free by 2024 within current bounds. However, that is of course not the plan nor is it realistic. In fact, the opposite is more likely, that PDL will need to refinance a part of the notes when we get to 2026...

Although zero debt is optimal, my experience is, that some debt as such is not a problem - as long as you have a plan to repay it, and generate enough cash to follow the plan. Therefore, we could easily also see a significant SP improvement in spite of the existing debt.

p.175 of the 2021 annual report reads:
"The Notes are listed on the Irish Stock Exchange and traded on the Global Exchange Market. On or after 9 March 2023, the Company has the right to redeem all or part of the Notes at the following redemption prices (expressed as percentages of the principal amount), plus any unpaid accrued interest:
Redemption price
Period of 12 months from 9 March 2023 104.88%
Period of 12 months from 9 March 2024 102.44%
Period of 12 months from 9 March 2025 100.00%

I note, based on the latest annual report, that PDL management expect to repay about 25% of the current debt of US$430 million by March 2024, and a part settlement of the rest by 2026. So, I guess net cash position is not likely in the near future... However, the good news is that total current debt is manageable, even under stresstest conditions, and the leverage level is ok again. The rest is up to the business ability to find and sell the diamonds...

Reference:
p.33: "The PDL Group had loans and borrowings (measured under IFRS) at Year end of US$430.3 million (30 June 2020: US$769.0 million), comprised of the:
• US$327.3 million Notes (includes US$11.3 million accrued interest and unamortised transaction costs of US$20.7 million) (30 June 2020: US$676.9 million)
• bank loans and borrowings of US$103.0 million (includes interest of US$0.1 million and unamortised transaction costs of US$1.7 million) (30 June 2020: US$52.1 million). "

p.92 on repaying the notes: "Management forecasts to FY 2026 contained with the viability statement indicate on a base case scenario that there will be a part settlement of the US$336 million loan notes due in 2026".

p.98 on repayment the bank loans and borrowings i.e. the US$103 million:
"The agreed amortisation profile will see the first lien debt repaid in full by March 2024."

Hi watcher, it is prudent to expect a consolidation of 50:1 being approved at the AGM tomorrow.

It is also significant that the net free cashflow target of US$100-150M by June 2022 is deemed realistic i.e.:
"As detailed in the Company’s FY 2021 Preliminary Results announcement, annualised operating cashflow benefits of circa US$70 million are expected to be delivered through these Project 2022 initiatives, and are expected to result in the Group meeting its US$100 to US$150 million net free cashflow target by the end of June 2022. "

yes, increase in revenue and prices looks good i.e. "Revenue up 48% to US$114.9 million (Q1 FY 2021: US$77.7 million) driven by proceeds from the sale of Exceptional Stones during the Quarter totalling US$50.2 million. Diamond prices on a like-for-like basis up ca. 3% compared to Q4 FY 2021."
But I am a little concerned about the impact of the refinancing part i.e. "Discussions with the South African Lender Group around the possible refinancing of the first lien debt commenced during the Quarter and are expected to be concluded during Q2 FY 2022." What do we make of that?

I think a higher consolidated share price 50:1 will decrease the cost pr share for buyers buying small amounts of shares e.g. 100 og 1000 or 10.000, since the fees will be lower pr share when you do not buy bulk.
So, a consolidation could be could for private small time investors as well as the pros.

MrCarats,
what is the problem with a simple consolidation? Why does this lead to privatisation in itself?

So far, existing shares are simply consolidated by factor 50:1 i.e. 1 New Ordinary Share of 0.05 pence each for every 50 Existing Ordinary Shares of 0.001 pence each. I agree with the directors' view, that this will increase liquidity of the shares, which can contribute to a higher share price.

source todays release:
"Proposed Share Consolidation

As further explained in the Notice of the AGM, one of the resolutions being proposed at the AGM will seek approval to implement a 50:1 share consolidation. Prior to the share consolidation, the Company's issued share capital totals over 9.7 billion shares, which has an impact on the trading price per share. Accordingly, it is the Directors' view that the share consolidation, on the proposed terms as set out in the Notice of AGM and below (the "Share Consolidation"), will have a positive impact on the liquidity of the shares in issue following the Share Consolidation, by reducing the number of shares in issue and raising the resultant trading price per share."

Hi Sam,
just a thought on what risks keep FT "on the sidelines", since they are not very specific in the article you provided...
The main risk seems to be that PDL does not find enough diamonds to increase profits (P&L). Some mention that since PDL is opening up a new vein, and therefore increasing capex to about 20% of expected sales in FY22, this is a further risk. But it costs money to earn money, and the capex level seems reasonable even after such an increase, given that 20/21 were exceptional years due to corona. As long as there is liquidity we seem good to go.
So far, FY22 har been a great year. On a monthly or weekly basis the sp has risen consistently, and is now consolidating on a much higher level (1.7) compared to where we started the year (1.45). If you managed to buy just after the restructuring in March of sub 1.3, you have en even better profitmargin. This confirms that PDL has turned the corner of covid and restructuring of balance sheet, and also reflects that PDL has already found and sold an amount of exceptional diamonds similar to last year (full update coming up 12th October). Why not expect more to come?
Also, even though diamonds seem to be a good counterbalance to a rising inflation, we are simultanously at rock bottom sp level due to continued volume sale from the large shareholders, who converted debt to equity in March. Some view this as a reason to sell out. I would argue the opposite, since from this level further good news will increase the sp. I agree, this can be a question of months, since the nature of the diamond mining business is uneven cashflow. So be it. I have stopped looking at daily or even hourly development charts, since they make little sense for such a small share with such special distribution. But, as mentioned, on a weekly or monthly basis, the pattern speaks for itself.

To cap it, I do not expect to lock my money away for years without looking. But so far, the development this financial year has been great. Now, a bit of patience might be required... the potential is great, the risk is small, the direction is right.-)

PS. sorry to sound so annoyingly positive and naive, but unlike some on this site, I fail to see the problem of holding PDL shares right now. And I also failed my intention of understanding what the many risks are, implied in the FT article.
Please help?

agreed Canetoad - diamonds might even benefit further from the current developments, with rising risk of market correction and interest increase underway, if diamonds take off as an inflation security.
In any case, I am increasingly confident that the current year's main PDL financial drivers of: cost-control strategy of current management, strong diamond prices, plan to sell loss-making entities (Koffie and Willi) or make them profitable, high level of extraordinary stones will pull through - let the dust settle...

After a day to think about it, there was not much really new in the FY21 yesterday. Accordingly, the sp did not move either…
But I am left with two confirmations:
1) the debt problem has been drastically reduced, and to any reasonable investor seems to be going away in 1-2 years, now that the leverage is below 1, and going down from here.
2) pdl still lacks basic profitability, så either they must find more precious stones, sell the unprofitable parts of the business or change their operational set-up. I believe it can work both ways.

Finally, the 91%ers seem to have learned their lesson and are not allowing spikes to peak through like they did on the 21st July. Whether this is a strategic choice for a longer timeframe, we will know more about next month when the 22q1 sales report is released.

For information, here is another article from todays newsflow that touches upon this subject, and gives the share a "hold" rating: www.investorschronicle.co.uk/news/2021/09/14/sparkle-slowly-returning-to-petra-diamonds/

So far, 50 mio shares have changed hands today.
A record daily number since the sales update 21st July.
But the sp has not moved an inch...
Still too much dust to be cleared ,-)

Argyle, maybe...
But I think PDL might be trying to get rid of loss-making assets like Williamson and Koffiefontein. It could make sense to me, if they are trying to leave the former management team's business model behind of "buy as much as you can of other peoples used mining assets, and try to make it work afterwards via borrowed funds". Instead, Duffy&co might want to move to increased quality of operations to optimise profit rate and transform to net cash thereby creating value for shareholders... this would more directly mitigate their key financial and reputational risk factors.
We will have to wait for further clarification, but this article seem to support my interpretation: www.miningmx.com/top-story/47458-petra-diamonds-puts-williamson-mine-up-for-sale-following-strategic-review/

on Williamson - what do we make of this comment: "The Board has decided to review its strategic options at Williamson and the asset has therefore been classified as an asset held for sale for financial reporting purposes." ?
Does that mean:
a) Williamson is actually up for sale (if so, likely because of the continued reputational risk inherent in mining the area) or
b) Williamson has been "mothballed" and therefore cannot be compared with the other parts of PDL operations, so to enable a "like-for-like" comparison and to minimise "polution of the financial results", the stakeholders are asked to disregard Williamson for the most part in the FY21 results or
c) something else?

My two cents of opinion:
1) financing the FY22 USD50m capex increase should be more than covered by the increase in operational efficiencies (reference the sales update comments on Project 2022, cleared waste ingress and excess rainwater at Finsch and Koffiefontein: "The Company remains confident that it will achieve the annualised contribution of US$50m, supported by measures taken to curtail the waste ingress at Finsch.").
2) the sales of exceptional finds FY22 of USD53.5m + 50% of sales proceeds (ref.: announcements 12th July and 25th August) is already at level of the entire contribution from exceptional finds in all of 2021 of USD60.2m. We will have to wait and see if the remaining 10 months leave us with nothing else or more than that... My bet is on the latter.
3) As long as cash keeps piling up much faster than what is needed to pay the bondholders their 336.7 MUSD debt + accrued 10.5% interest, when the time comes in five years, we should be ready to rerate. Reducing net debt and increasing earnings to minimum 1.5 times interest, all the way to net cash, is key to market confidence (and PDL credit ratings)...

As and when the above points are recognised by the market, I would expect the SP to adapt to allow an enterprise value (net debt+equity) similar to 2020 as a minimum i.e. about USD 700m. We are currently at net debt USD240m + USD230m equity - with net debt going down, the only factor that can compensate for this imbalance is a rising share price...

BUT - for the share price to go up, the demand must be higher than the supply (obviously), and this result still looks to be hindered by the 91%ers wanting to dump (parts of) their shareload due to historical circumstances. So, I will wait for the dust to settle... daring to hope that PDL will thrive. As the Chinese curse sounds: May you live in exciting times ,-)

a somewhat laid-back, but positive tone, by Duffy: www.miningmx.com/top-story/47436-one-might-share-issue-saved-petra-diamonds-now-ceo-richard-duffy-plans-to-have-it-thrive/