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) said on Tuesday it had missed its diamond production target for fiscal 2023, while sales remained low due to weak demand.
The diamond miner produced 2.67 million carats for the year to June 2023, down by 20% from fiscal 2022. The figure was below Petra’s guidance of 2.75-2.85 million carats, which had been already reduced from the 3.3 million carats originally anticipated for 2023.
The fall in diamond output was largely down due to a drop in grades at its Cullinan and Finsch mines in South Africa. The company noted it has already taken measures to mitigate those grade issues.
“With an operational turnaround underway at Finsch, the restart of Williamson ahead of schedule and our capital projects on-track to deliver incremental growth, we are reiterating guidance for annual group production to increase by up to one million carats in fiscal 2025, and issuing further guidance of up to an additional 300,000 carat increase for fiscal 2026,” chief executive Richard Duffy said in the statement.
The miner’s revenue from diamond sales dropped 44% to $328.4 million in the fiscal year ended June 30 from $584.1 million in 2022, driven by a lower contribution from “exceptional” stones. Petra qualifies as such rough diamonds that sell for $5 million or more each.
The company sold 34% fewer rough diamonds in fiscal 2023, partly due to the fact that recoveries also fell by 20%.
Petra had to postpone the majority of what would have been its sixth sale for its 2023 fiscal year from June to August, which will be Petra’s first of fiscal year 2024.
The decision was due to what the company called “a temporary slowdown” in the rough diamonds market. The miner said at the time that sluggish diamond demand over the past few months was related to elevated inventory in the mid-stream sector — mostly cutters and polishers.
BMO analyst Raj Ray noted that despite some weaker figures there are no major changes to cash costs and capital estimates for fiscal years 2024 and 2025, with the impact of inflation offset by a weaker Rand vs. US dollar. “F2026 cash costs and capex are, however, higher than our forecast,” he said.
“Based on our diamond price forecasts, we expect the company to continue to deleverage,” Ray wrote in a note to investors. “While the operational and financial outlook is positive, the low share liquidity could be a challenge for investors and something that the company will need to address.”
Despite current market conditions, Duffy said the company continues to expect a supportive diamond market in the medium to longer term as a result of the structural supply deficit.
