Petra Diamonds, owner of the South African mine famous for producing two of the diamonds in the British crown jewels, has put itself up for sale as it battles to service its debts.
The London-listed miner, which has been in talks with creditors after the coronavirus pandemic hammered the diamond market, said it was seeking offers for all or part of the company that owns the Cullinan mine.
Petra failed to make an interest payment on a $650m bond last month, but won some breathing space from creditors who said they would not declare a default until August.
In return the company has been asked to come up with a draft term sheet setting out the proposed terms of a capital restructuring plan by the end of June. The $650m bond has to be refinanced by May 2022.
“This is a very challenging market to seek offers for the mines, when the diamond miners are struggling even to sell the diamonds themselves due to both travel restrictions in getting to sites, lockdown of cutting and polishing centres in India and collapse in jewellery sales,” said Ben Davis, an analyst at Liberum.
Shares in Petra, which were trading at 57p two years ago, dropped 21 per cent to 1.67p, leaving the lossmaking company valued at just £14m.
The $80bn diamond industry has been devastated by the pandemic, as a global supply chain spanning mines in South Africa, polishers in India, and retailers in London’s Hatton Garden, has ground to a near halt because of lockdowns imposed to contain the virus.
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At the same time, its debts have increased following investment in a new processing plant at Cullinan and the expansion of underground operations at other mines. These include Finsch, South African’s second-largest diamond mine by production.
“Cullinan and Finsch mines are good assets and will eventually be picked up, but the other mines, particularly Williamson in Tanzania, have little to no value for outside investors, unless they have very favourable views of the diamond industry or the political situation in Tanzania,” said Mr Davis.
Cullinan has a reputation for spewing out top-notch gems. In 1905 it produced the largest rough diamond in the world, at 3,106 carats, which became part of the British crown jewels. In 1966, it delivered the Taylor-Burton diamond.
Richard Hatch, analyst at Berenberg, said it was not unusual for advisers to explore all options during a debt restructuring process but he could not think of any obvious buyers for Petra.
Having sold its mines to Petra in the first place, he said De Beers was unlikely to repurchase them unless it could do so at a significant discount, while Russian group Alrosa was focused on other African countries including Angola.
“We continue to believe that a debt-for-equity swap is the more likely end-result for Petra, and struggle to see any obvious parties that could make a bid for the group, as the $650m debt presents a major stumbling block, we think,” said Mr Hatch.