The proposed sale of Anglo American’s 85% stake in De Beers would enhance market visibility and focus, according to Richard Duffy, CEO of Petra Diamonds. Duffy suggested that De Beers, as an independent entity, would invest more in marketing efforts.
Anglo American announced on May 14 its intention to sell De Beers as part of a group-wide restructuring, which includes unbundling its shares in Anglo American Platinum.
During an investor day, Duffy outlined new life-of-mine and capital spending plans for Petra’s Finsch and Cullinan mines in South Africa.
Having cut costs by $30 million annually, Duffy projected free cash flow of $180 million over the next five years, based on the lower end of diamond price forecasts. Petra anticipates 2025 prices of $125 to $135 per carat at Cullinan and $98 to $105 per carat at Finsch.
This improved cash flow is expected to alleviate pressure on Petra’s balance sheet, where net debt to EBITDA rose to 3.2x by the end of December 2023 (from 1.6x in December 2022).
The market remains concerned about $257 million in loan notes maturing in 2026, which Petra plans to repurchase opportunistically.
The diamond market faces significant pressure, as evidenced by a recent decline in De Beers’ sales. A report by Morgan Stanley highlighted a “downward spiral” in polished diamond sales with no signs of a demand turnaround this year.
Duffy concurred, predicting flat prices for 2024 but an improvement in 2025. Petra’s head of sales, Greg Stephenson, noted that increasing demand from India could offset some of the reduced demand from China.
Duffy emphasized that a standalone De Beers would not reduce production capital despite increased marketing spend. He expressed optimism about the future, citing a projected decline in diamond supply.
On South Africa’s political landscape, following the recent elections where the ANC garnered only 41% of the vote, Duffy viewed the current Government of National Unity (GNU) as the best possible outcome.
He anticipated improved oversight of government functions and a better regulatory framework for investors. However, he cautioned that challenges remain and did not expect an immediate improvement in the rand/dollar exchange rate due to underlying issues.
Overall, Duffy’s outlook remains cautiously optimistic, with an emphasis on strategic planning and adapting to market conditions.
