Petra places Finsch mine in business rescue, takes further steps to cut costs

Amid continued weakness in the diamond market, London-listed Petra Diamonds has decided to place its Finsch mine, in South Africa, in business rescue in order to protect the overall business.

CEO Vivek Gadodia says the company believes the overall business has a viable future, given the Cullinan mine's unique product mix, which has, thus far, enabled it to mitigate the weak market and a stronger rand.

"To ensure a more resilient business going forward, which is able to withstand a weaker-for-longer market and in light of the expected stronger rand and the structural decline in prices of the smaller-sized diamonds, we need to further optimise the operations at Cullinan mine and the rest of the group.

"We, are therefore, also announcing today the company’s intention to launch a process contemplated in Section 189A of the South African Labour Relations Act, as a way of reducing expenditure at the Cullinan mine and the rest of the group. The process will be conducted in consultation with employees and organised labour in accordance with applicable law," he adds.

Gadodia says Petra is faced with an "unprecedentedly weak" diamond market as a result of global macro factors and the recent Middle East tensions.

"In particular, we continue to see deterioration in the value of the smaller-sized diamonds, where we do not currently expect a material near-term recovery. Our tender results for April and May have yielded an average price for Cullinan mine of about $81/ct, while Finsch averaged about $47/ct.

"In addition, the sustained stronger rand has had a significant impact, with no indication that this is going to change in the near future," he states.  

In order to mitigate the impacts of the weaker market and the stronger rand, the company has been implementing immediate cash preservation measures, which include stopping capital expenditure at Finsch, refocusing efforts to increase production in the high-value areas of the Cullinan mine and piloting additional productivity enhancing levers at the Cullinan mine.

Further, Petra has been assessing the business in light of these ongoing headwinds, with a specific focus on the assessment of the viability of the Finsch mine.

"These are difficult times for the natural diamond sector, but we remain committed to ensuring safe operations and delivering on our short-term targets. We have full confidence on the Cullinan mine’s product mix to outperform the market and will be focusing on creating a more resilient company on the back of an optimised Cullinan mine.

"We are working towards an updated business plan, which we anticipate being completed by the end of September, taking into account the outcomes of the intended Section 189A process, the business rescue process of Finsch, as well as updated capital and production profiles,” Gadodia says.

Meanwhile, as part of the restructuring of the company's operations, Petra's board has reached an agreement with Juan Kemp to step down as joint-CEO at the end of May.