Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Petra Diamonds (LON: PDL) has postponed the majority of what would have been its sixth sale for its 2024 fiscal year due to what it calls “a temporary slowdown” in the rough diamonds market.
The miner said that weaker diamond demand over the past few months was related to elevated inventory in the mid-stream sector — mostly cutters and polishers.
The diamonds set aside for tender in June will now be offered in August, which will be Petra’s first of fiscal year 2025. They include about 230,000 carats recovered at its Cullinan mine and roughly 150,000 carats from its Finsch mine, both in South Africa.
Petra had withheld a portion of diamonds in its fifth sale last month. It said at the time that offers didn’t match price expectations for its higher value goods.
The company said it expected the new deferral of sales to impact revenue and financial results in both 2023 and 2024 fiscal years.
Analysts were not concerned over the announcement. BMO’s Raj Ray said that given Petra’s adequate liquidity the move was not a major worry.
“However, a sustained weakness in the diamond market could result in the company having to make some difficult capital allocation decisions,” Ray wrote in a note to investors.
Experts at capital markets specialist SP Angel were less optimistic. They said they are beginning to follow anecdotal evidence of tough market conditions, adding that the mid-stream and end markets seem to be “stuffed with mined diamonds which they are struggling to pass on”.
SP Angel believes the supply glut is being caused in part by the increased role of lab-grown diamonds (LGDs), of which the sale is more profitable for jewellers as they can reach margins of over 80%.
“Jewellers are pushing LGDs onto unsuspecting customers in place of natural mined diamonds due to much higher LGD margins,” it said.
The broker added that other factors pressing on the diamond market are rising economic uncertainty and interest rates, and the fact that Indian jewellers appear willing to continue buying Russian stones despite Western sanctions.
Petra Diamonds plans to publish its preliminary results for fiscal 2024 on September 12.
