Petra Diamonds – heightened interest could well lift its shares

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Petra Diamonds – heightened interest could well lift its shares
Master Investor Magazine

Master Investor Magazine Issue 58

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Down-and-out miner Petra Diamonds could see its shares sparkle once more, writes Mark Watson-Mitchell. 

Over the next month or so, I do believe that there will be a flow of news and interest being shown in this little company.

Little? Well it might be in terms of market capitalisation, which is just £80m, but in terms of its debt it is a mega-player, with a $650m secured corporate bond that pays 7.25% and matures in May 2022.

Over five years ago its shares were trading at 165p each. At the start of last year, they were just 45p, and come October they were bottoming out at 6p each, since when they have risen 50%.

But don’t let us get bogged down with such numbers.

Petra Diamonds (LON:PDL) is a leading independent diamond mining group focused on Southern Africa. It is a consistent supplier of gem-quality rough diamonds to the international market. The company is the fourth largest listed producer in the world.

As a junior diamond explorer, the company floated on AIM in April 1997, with a market cap of £8.75m. It stepped up to the Main Market in December 2011.

Over the years it has acquired a number of diamond mining assets that were non-core to De Beers. It has subsequently built up interests in three producing operations in South Africa (the Finsch, Cullinan and Koffiefontein underground mines) and one in Tanzania (the Williamson open pit mine).

It now has a major resource base of around 250m carats. The group, which has ‘world-class’ assets, focuses on the potential for significant production, operating margin, diamond resources and remaining mine life.

The company believes that it has assets with robust economics that can withstand fluctuations in the global capital markets, as well as in the diamond market itself.

And that market has not been plain sailing of late. Worse still, the company itself has had problems with its ability to meet publicly announced targets.

However, that, hopefully, is on the change.

New top management is beginning to have an impact and the tide is on the turn. What is more, I believe that this is going to become very evident over the next month or so.

Monday of next week (27 January) will see the company announce its production and sales update for the six months to end-December 2019.

Less than a week later, the company will host an investor and analyst visit to its Cullinan mine in South Africa.

The Cullinan mine is a top name in the business. It has produced more than 25% of the world’s diamonds that are greater than 400 carats.

Then, on 17 February, the company will announce its interim results for the six months to end-December last.

It has some 865m shares in issue and its major holders include Standard Life Aberdeen (15.2%), M&G (10.2%), Cobas Asset Management (5.0%), Lazard Asset Management (4.9%) and the group’s directors (2.0%).

Estimates from Tamesis Partners suggest that revenue will be $446m for 2020, giving a net loss of just $3m.

Next year, $471m of revenue could see $10m net income, which would give 0.01c of earnings and put the shares, at around the 9p level, on a mere 8.5 times earnings.

My end-2020 target price is 12p.

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