In a trading update, the FTSE All-Share listed firm said its production guidance for the financial year to the end of June would be between 4.6mln and 4.7mln carats, down from a previous forecast of 4.8mln to 5.0mln carats.
The group said the cut was mostly due to a drop in grade for South Africa's Cullinan mine, as well as lost production in the first quarter due to labour action.
Petra added that the lower grade guidance for Cullinan in financial 2018 will be largely offset by higher diamond prices, meaning revenue per tonne will remain in line with expectations.
However, it warned that its underlying earnings (EBITDA) for full-year 2018 is expected to see a 10% to 15% impact from the stronger rand on Petra's cost base in US dollar terms.
The group said diamond production for the six months to December 31 was up 10% to 2.2mln carats from 2.0mln carats, in line with guidance and a record level.
However, the firm said, diamonds sold in the second half fell by 5.0% to 1.8mln carats, down from 1.9mln, though it added that the second half is expected to be stronger, while rough diamond prices fell by 3.5% year-on-year in the period.
The company also said it is talking to its lender group over support but remains confident of a positive outcome, with the talks expected to finish during the third quarter of the year.
Focus on value rather than volume
Petra’s chief executive, John Dippenaar said: "Petra's stated strategy is to focus on value as opposed to volume production, which is particularly pertinent to diamond operations, as not all carats are of equal value.
“Our assessment of optimal recoveries at Cullinan has therefore led us to opt for lower carat volumes, due to the positive impact that not recovering the small diamonds has on the average value per carat."
He added: "This has led to lowered production guidance for our financial year 2018, but does not materially impact our expected revenue, further to the positive uplift in Cullinan's average value per carat."
In late morning trading, Petra shares were down 18.5% to 64.15p.
AJ Bell investment director, Russ Mould commented: “Petra has been dealt a number of blows over the past few years including the blocking of a consignment of diamonds by the Tanzanian government and lacklustre diamond prices. It has also had to endure additional pressure on earnings by having to extract lots of waste material pending a move to fresh sections of ore at several of its mines.
“All of these issues have forced Petra to be in regular contact with its lenders as it tests debt covenants. This has been going on for a long time, so it begs the question of how long its shareholders will stay supportive.”