Petra Diamonds flags revenue hit as it defers sale to August

Petra Diamonds (LSE: PDL) has postponed the majority of what would have been its sixth sale for its 2023 fiscal year due to what it calls “a temporary slowdown” in the rough diamonds market.

Weaker diamond demand in the past few months was related to elevated inventory in the mid-stream sector — mostly cutters and polishers, the miner said in a news release on Wednesday. 

The diamonds set aside for tender in June will now be offered in August, which will be Petra’s first of fiscal year 2024. They include about 230,000 carats recovered at its Cullinan mine and roughly 150,000 carats from its Finsch mine, both in South Africa. 

Petra had withheld a portion of diamonds in its fifth sale last month. It said at the time that offers didn’t match price expectations for its higher value goods.

The company said it expected the new deferral of sales to impact revenue and financial results in both the 2023 and 2024 fiscal years.

Analysts were not concerned over the announcement. BMO analyst Raj Ray said that given Petra’s adequate liquidity the move was not a major worry. “However, a sustained weakness in the diamond market could result in the company having to make some difficult capital allocation decisions,” Ray wrote in a note to investors.

Experts at capital markets specialist SP Angel were less optimistic. They said they are beginning to follow anecdotal evidence of tough market conditions, adding that the mid-stream and end markets seem to be “stuffed with mined diamonds which they are struggling to pass on”.

Lab diamonds to blame

SP Angel believes the supply glut is caused in part by the increased role of lab-grown diamonds (LGDs), sales of which are more profitable for jewellers as they can reach margins of over 80%.

“Jewellers are pushing LGDs onto unsuspecting customers in place of natural mined diamonds due to much higher LGD margins,” it said.

The broker added that other factors pressing on the diamond market are rising economic uncertainty and interest rates, and the fact that Indian jewellers appear willing to continue buying Russian stones despite Western sanctions.

Petra Diamonds plans to publish its preliminary results for fiscal 2023 on Sept. 12.