RBC has downgraded Petra Diamonds (LON:PDL) to ‘Sector Perform’ from ‘Outperform’ after a trading update saw a drop in diamond prices at its flagship Cullinan mine.
In a note, analysts at the Canadian bank said while they remained “cautiously optimistic” of recovery at Cullinan, the US$94 per carat diamond price from the mine in the period was “well below” their own estimates of US$132 per carat.
READ: Petra Diamonds shares lose their shine as decline in diamond prices overshadow improved revenues
“We see concerns that despite ramping volumes that prices are not following, indicating the "base" level of pricing may be structurally lower than previously anticipated.”
The bank also cut its target price for the firm to 40p from 65p while also reducing its diamond price forecasts to reach US$126 per carat by the end of 2020 from US$146 per carat previously.
However, RBC’s analysts said there was still some optimism, saying that diamond pricing was “likely, in our view, nearing lows and supply is likely to start to fall”.
“Increasing specials would help to augment prices, and the maturing caves should improve Cullinan.”
In late-morning trading Monday, Petra shares were down 14.2% at 38.5p.