Petra Diamonds Limited, announcing its Trading Update (unaudited) for the three months ended March 31, 2020 (the Period/Q3 FY 2020) and the nine months ending March 31, 2020 (9M FY 2020), reported a 1% increase in Q3 production to 932,456 carats (Q3 FY 2019: 924,228 carats). This, despite the COVID-19 lockdown measures implemented in South Africa from March 23, 2020, the Company emphasised.

For 9M FY 2020, production was up 2% to 3,002,697 carats (9M FY 2019: 2,943,374), “demonstrating the delivery of significant throughput benefits realised through the implementation of Project 2022, offset by the disruptions to production relating to Eskom load shedding during Q2 FY 2020 and the COVID-19 lockdown measures towards the end of Q3”, Petra noted.

Q3 revenue however, dropped by a notable 32% to US$91.3 million (Q3 FY 2019: US$135.2 million), as the March 2020 tender was impacted by the COVID-19 pandemic. The Company added: “Post Period end, a follow-up tender in Antwerp realised US$6.3 million with rough diamond prices for the combined March / April tenders down ca. 27% compared to February 2020 prices. Ca. 24kcts, being 5% of the volume of goods offered for sale and comprising predominantly higher-value goods, remain unsold, further impacting prices realised, and will be offered for sale in the next tender cycle.”

The revenue for 9M FY 2020 revenue was lower by 17% touching US$285.2 million (9M FY 2019: US$342.4 million) as a result of weaker prices and lower sales in the March tender.

Petra reported a net debt of US$601.0 million at March 31, 2020 as compared to a net debt amounting to US$596.4 million as at December 31, 2019.

The Company also reported unrestricted cash of US$64.2 million (31 December 2019: US$40.1 million), including US$28.0 million further to the Company drawing down shortly before Period end the full ZAR500 million under its working capital facilities (31 December 2019: nothing drawn under the bank facilities).

Petra noted that ZAR:USD exchange rate volatility continued during the Period, averaging R14.92/USD1 but closing the Period at ZAR17.84/USD1; “the weakening ZAR is partially offsetting some of the price weakness realised through diamond sales”, the Company pointed out.

Petra reported that its operations in South Africa were reduced to approximately one third of normal operating levels after the lockdown was imposed in that country on March 26, 2020.

From around April 24, 2020 to the end of May, the South African mines have been operating at staffing levels of 50%, in accordance with the Department of Minerals and Energy (DMRE) guidelines; and from 1 June 2020, restrictions have been further eased which will lead to a subsequent increase in production.

The Company’s Williamson mine in Tanzania remains under care and maintenance. Its recommencement “is dependent on improved market conditions and rough diamond pricing”, Petra stated.

The Company also said that production guidance for FY 2020 remains suspended “Due to ongoing uncertainty around the impact of COVID-19”.

Petra had cancelled its sixth annual tender cycle, which is usually held during May, due the ongoing travel and other restrictions worldwide. The Company is “assessing the viability” of holding a tender during June 2020.

The Company stressed that it has taken steps “to optimise its future capex profile in order to minimise short-term capital requirements and manage its liquidity through the crisis period”.

Richard Duffy, Chief Executive of Petra Diamonds, commented: “Our operations continued their strong H1 performance into Q3, in large part due to the delivery of throughput benefits further to the positive implementation of Project 2022, prior to the disruptions caused by the outbreak of COVID-19.”

He added: “We are also reviewing our capex requirements, with a view to deferring near term capital as one of the key levers available to the Company in terms of managing our liquidity whilst at the same time ensuring that the business remains well positioned when the market recovers over the medium to longer term.

“Likewise, we have made good progress in improving our liquidity position and addressing our capital structure through securing access to R400 million of our RCF and executing the Forbearance Agreement, allowing us to withhold the May interest payment to our note holders and to continue with constructive discussions around our capital structure.”

Petra remarked that the severe impact of the COVID-19 outbreak has significantly reduced activity throughout the pipeline: from production, rough sales, trading, cutting and polishing right through to consumer sales.  

“There are early indications of improving market conditions in China and other Asian economies, while in the US a small number of retail outlets are beginning to reopen,” the Company noted. “In the midstream, small volumes of exports have resumed from India and buyer interest for rough diamonds in cutting centres seems to be picking up. At this stage, however, it is too early to draw firm conclusions from these developments.”

Petra also emphasised that the major diamond producers have taken steps to restrict supply to the market. This they have done by implementing production cuts and reduced sales. This will help to restore the supply/demand balance in due course. “Longer-term the supply cuts implemented this year are expected to benefit the fundamentals for natural diamonds, which are an increasingly scarce resource,” Petra concluded.