Petra Diamonds PLC (LON:PDL) has been downgraded to ‘equal-weight’ from ‘overweight’ by Barclays as the bank's analysts noted that the miner is faced with a depressed diamond market exacerbated by the coronavirus pandemic.
In a major review of the mining sector, Barclays' analysts said Petra’s balance sheet and cash are “likely to come under significant stress” during the operational halts in South Africa due to the coronavirus lockdown.
READ: Petra Diamonds tarnished by earnings decline and slow start to 2020
The country enforced a 21-day lockdown starting on March 26 so Petra is currently working at a minimum level to maintain its underground block caves.
The analysts said it is unclear when operations can restart fully and they question whether it would be “prudent” given the “lack of revenues”.
According to Barclays, Petra's US$650mln debt pile versus its US$26mln market capitalisation looks “unsustainable” and they think the group's borrowings should be restructured.
Barclays reduced its target price for Petra to 3p from 11p, with the share trading 3% higher at 2.5p late morning on Thursday.
BHP best-positioned in mining sector
Looking at the wider mining sector, Barclays' analysts cut target prices across the board but said BHP Group PLC (LON:BHP) looks the best positioned to weather the crisis thanks to its exposure to iron ore and a healthy balance sheet.
Around 70% of iron ore demand comes from China, just is slowly returning to normal after being hit by the coronavirus first, which the Barclays' analysts think leaves BHP well placed when demand rises in response to export weaknesses.
The analysts said they are bearish on aluminium prices, which they think "could head into the US$1200s in the absence of material smelter closures to match structural demand losses in auto/aerospace”.