Petra Diamonds Limited said it expects the strong market fundamentals that underpinned its 2022 performance to continue as it posted a 44% increase in annual revenues to US$585.2mln.
The group, which has four operating mines – three in South Africa and one in Tanzania – benefited from a 41.5% increase in diamond prices during the 12 months ended June 30.
This in turn was the result of increased demand from the jewellery market post-pandemic, particularly in the US, and the sale of some ‘exceptional stones’, which tend to command higher prices per carat.
“This year’s performance completes the successful turnaround of Petra and includes the implementation of our new operating model, incorporating continuous improvement, following the conclusion of Project 2022 which has delivered improved efficiency, capital discipline and strong cash generation,” said chief executive Richard Duffy.
Digging under the surface, the company’s financial position improved markedly in the period as net debt fell 82% to US$40.6mln, which was the result of strong free cash flow generation.
This improvement was applauded by investors and analysts.
”Net debt is the standout…partly on deferred capex spending, but also we assume on a significant working capital inflow as inventories are now largely normalised,” said broker Peel Hunt.
“Such a headline net debt figure should highlight to the market that Petra’s balance sheet is now firmly under control.”
Production for the year totalled 3.35mln carats, in line with pre-results expectations. Going forward, output is expected to be 3.3-3.6mln carats next year and in 2024, rising to 3.6-3.9mln for 2025.
On-mine costs are expected to remain steady over the next three years at US$300-US$320mln.
“We are monitoring cost increases in our operations very closely, but our relatively low fuel consumption, disciplined cost management, three-year labour agreements to June 2024 and exposure to a weaker South African Rand will assist us in better absorbing these cost pressures.
“Petra’s enhanced operating model provides a platform for greater stability and resilience, enabling further cash generation to fund our capex requirements and support further deleveraging.”
The shares rose 4p to 101p. Peel Hunt reckons that at just 1.5-times underlying earnings (EBITDA), Petra stock is undervalued. Reiterating is ‘buy’ recommendation, the broker set a price target of 175p.
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