Top diamond mining company puts South African mine in business rescue

Petra Diamonds is putting one of its two mines into a business restructuring process and is considering job cuts across the rest of the company, as falling diamond prices and a strong rand erode earnings and liquidity.

Shares of the struggling London-listed miner tumbled by as much as 32% to a record low, following its statement Friday that it has launched a formal business rescue at its Finsch site.

That’s a legal process that places a financially distressed company under the supervision of an independent practitioner while limiting creditor enforcement.

The company is also seeking to reduce costs and streamline operations at its Cullinan mine, potentially leading to job cuts, it said in the filing.

The firm has secured waivers from its lenders, which include Absa Bank and holders of its second-lien notes, so that the move won’t trigger a debt default. 

Petra Diamonds has been under pressure as weak demand for rough diamonds has hurt prices and squeezed cash flow.

In August, the company unveiled a debt refinancing that extended the maturities of its bank facilities and bonds, as well as a $25 million rights issue. 

But conditions have worsened since then. Petra said prices for smaller diamonds have continued to decline, while a stronger South African rand has further crimped profitability.

The challenges have been particularly acute at Finsch, where more than 90% of production consists of rough stones weighing 2 carats or less, a segment the company says is undergoing a structural decline in pricing.

“We are faced with an unprecedentedly weak diamond market,” Vivek Gadodia, the CEO of Petra Diamonds, said in the statement, citing global macro factors as well as the recent Middle East tensions.

He has replaced Juan Kemp, who is stepping down as part of the restructuring.

The business rescue process in South Africa is designed to give distressed companies time to explore restructuring, funding, or sale options before a potential liquidation.