PRICES for high-value diamonds have increased 10% this year, a promising development for miners of the precious stones who have been under the cosh since at least 2022 amid poor trading conditions.
Australia’s Lucapa Diamond Co went into administration in May, while the like-sounding Lucara Diamond Corp, listed in Toronto, drew on emergency financing facilities to remain liquid. Closer to home, Astoria Investments wrote down the value of its marine diamond operations to zero and is unlikely to follow its rights in 13.9%-owned Trans Hex, which is in need of new equity.
These companies are minnows, however, against Petra Diamonds, a 2.5-million carat a year diamond miner that is hanging on for dear life. While only a quarter of its financial year remaining, Petra reported in early June a 16% lower average price over six auctions, on a like-for-like basis, than the equivalent tenders of 2024. Revenue was $239m, down from $329m last year.
Petra consequently drew on $33m to fund working capital, taking consolidated net debt to $258m at end-March. That’s a big problem because what the company needs now is more cash and less debt. A $273m bond matures in March amid scepticism over whether Petra will survive the event.
S&P Global Ratings says the company faces a mounting liquidity challenge with an “increased likelihood of default”. Analysts at Berenberg Bank say in a note that this may result in “distressed exchange or debt restructuring over the next 12 months if Petra is unable to refinance its debt maturities on time”.
Petra operates the historic Cullinan mine northeast of Pretoria, as well as Finsch — both of which were bought from De Beers at a time when it was targeting 5-million carats a year in production. These days the company is completely stripped back. It sold its Williamson mine in Tanzania and in January retrenched staff in South Africa in a process that also saw the departure of its CEO for six years, Richard Duffy. It was Duffy who saved the company from bankruptcy. Now it faces another struggle to avoid that fate.
Meanwhile, on June 9, Petra said it had departed from its regular auction cycle in order to sell stones opportunistically. It had been rolling up its auctions into a single event in a clear sign of how tricky rough diamond sales have become.
No-one is exempt from the market pain. De Beers has employed a similar tactic. According to a report by Bloomberg News in May, the diamond giant “secretly” sold stones to buyers to manage its burgeoning $2bn-plus stockpile.
Yet is the diamond market about to provide Petra et al with a lifeline?
Independent diamond analyst Paul Zimnisky says record-low production and a paucity of new supply may finally be moving the needle. Production is forecast to remain flat at between 100-million and 125-million carats through to at least 2029, having fallen from just under 180-million carats in 2006, he says.
And while there are some long-life assets such as De Beers’s Jwaneng, Orapa and Venetia mines set to operate for another two to three decades, Zimnisky expects natural production to fall to about 50% from current levels in the long term.
Myles Allsop, an analyst for Swiss bank UBS, says: “The diamond market is starting to recover, with prices up modestly from the floor on material supply curtailments.”
In addition, efforts by De Beers to advertise more aggressively are expected to drive demand and help differentiate natural diamonds from their lab-grown cousins. “The fundamentals look attractive in the medium term, assuming demand picks up,” says Allsop.
A version of this article first appeared in the Financial Mail.
