Much water has flowed under the bridge since Adonis Pouroulis first arrived in London brimming with entrepreneurial plans two decades ago. Since then he has proved himself one of the great survivors in the resources space, founding a string of companies across the commodities spectrum and cutting deals aplenty along the way.
The company he’s still best known for is Petra Diamonds LTD (LON:PDL), and as chairman since its’ inception he is surely now one of the longest-standing directors of a mining company anywhere in the world.
Such longevity breeds its own confidence, as well as a certain amount of sang-froid, and it allows for a unique institutional knowledge too, of course, but even so there will come a time when Pouroulis steps aside from Petra and allows someone else to take the reins.
A three year succession plan is already well underway, with the appointment of two new non-executive directors already, following some tough times for the company.
Pouroulis argues that the worst is over, but there’s no doubt that investor confidence has been bruised, and for a variety of reasons.
The one that still spooks the market the most is the sizeable debt pile that was built up under former chief executive Johan Dippenaar, now departed for pastures new. That debt was incurred largely to allow the company to spend its way out of a drop in productivity and to develop more profitable areas of its mines. It’s a capital expenditure programme that’s now largely over, but there’s no doubt it’s left some scars.
The troubled politics of going mining in Tanzania, where Petra runs its Williamson mine, haven’t help sentiment either. And neither has a general downturn in the diamond market.
All told, Petra’s shares have lost more than 90% of their value since they hit a peak of 216p in July 2014.
But even allowing for that share price decline, the company is still capitalised at over £148mln, no small achievement given that Pouroulis built it up from scratch and went through at least two different flagship assets before he eventually settled on the strategy of acquiring existing production that created the current portfolio.
But investors have selective memories, and while there are still those around who remember Petra’s initial rise, there are plenty too who recall the glory days when it was a billion dollar company, a comfortable third in the diamond company pecking order after De Beers and Alrosa. They want those days to return, not least because they are significantly out of the money.
Pouroulis is mindful of all this, and confident that a return to the good times is just around the corner.
“Petra is back,” he says. “We have gone through a programme of massive capital expenditure and now we are firing on all cylinders from all our mines.”
Johan Dippenaar has made way for a new chief executive, Richard Duffy, who previously ran AngloGold’s African operations, and was also AngloGold’s chief financial officer. He’s a heavy enough hitter to convince the company’s institutional backers that there is once again real upside to Petra, and that a new broom is sweeping out the old debt-ridden era.
He’ll have his work cut out, as net debt, as recorded in February’s interims stood at US$559mln, and the company was still loss-making.
But Pouroulis is confident that from here on in the going will get easier.
Several factors work in Petra’s favour, he says.
“We have long-life mines, new management, a full spectrum of diamonds that we mine, and we are not dependent on one mine.”
The diversity of the company’s portfolio, with a variety of stones coming variously from the famous Cullinan mine, from Finsch, Koffiefontein and from Williamson, allows for a certain flexibility in difficult markets. A predominance of small stones, for example might render any company extremely vulnerable at the current time, since prices in this segment of the market are particularly weak. But although the production of smalls, otherwise known as the minus-9 sieve size, makes up around 45% of Petra’s production it only accounts for eight or nine per cent of revenue.
In fact, Petra produces all sizes, as well as a variety of coloured stones too. The Cullinan mine continues to throw up extremely large stones, and has already yielded a 425 carat stone and a 100 carat stone this year, as well as some smaller blues. Both the larger stones were extremely high quality in terms of colour and should generate significant value on the market when put up to tender. In the last couple of months Williamson too has yielded some attractive pinks.
Petra doesn’t make as much of a fanfare of its larger stones as it used to, partly because larger stones are usually incorporated into analysts’ models, and partly because it’s harder to make a splash about multi-million dollar stones when your debt is in the hundreds of millions.
More to the point though, the large stones do provide insulation against weaker prices at the smaller end of the market.
Overall this year, Petra expects to produce between 3.8mln and 4mln carats, following a 10% increase in production during the six months to December. The latest quarterly results, however, delivered a somewhat down-at-heel 7% reduction in quarter-on-quarter revenue, as an issue with a winder hindered further progress at Finsch.
Broker Liberum noted in response that a further increase in pricing for Cullinan stones will be required before the company can once again boast “meaningful cashflow.”
Sill, Petra has already noted some increase in the sales prices its receiving for its stones. The resumption of full production at Koffiefontein is helpful too, and underground expansion at Finsch and Cullinan is now nearing completion.
As it stands, though, it’ll take more than that to get the debt down to levels the market can feel comfortable with – either an uptick in diamond prices, which isn’t out of the question, or the generation of further efficiencies in production.
As a significant shareholder himself, Pouroulis remains as interested as ever in success. He’ll play an active role for a while yet, but the time is drawing close when he’ll be content to watch from the sidelines. By then, it’s hoped, the company will be back at the top of its game.