PETRA Diamonds today raised the possibility of significant dilution for equity holders in order to climb out of the liquidity crisis engulfing the company.
The UK-listed firm said in an update today that a new capital structure may involve significant dilution to shareholders. A company spokesperson declined to comment further as discussions with shareholders were private.
Whilst announcing the recovery of five rare blue diamonds, Petra said: “… these finds, whilst a positive development, will not have a material impact on the likely terms of the required long term solution to improve the group’s capital structure, nor the significant level of equity dilution that existing shareholders are likely to experience in connection with its implementation”.
Shares in Petra have been pummelled this year after it emerged in March the company was struggling to pay interest to bond holders representing some $650m in debt.
By June, it announced it would seek offers for the company following a strategic review. One option was to sell certain assets which largely consist of the South African mines and Williamson, the mothballed operation in Tanzania.
Providing an update, Petra said it continued discussions with commercial banks and the Ad Hoc Group of holders of its loan notes (lenders who in March said they may potentially force a redemption of the $650m bond) on an optimal capital structure.
“While the company continues to have constructive engagement with the AHG and the lender group, there can be no certainty that these discussions will result in agreement being reached,” the firm said.
Against the backdrop of corporate salvage, the discovery of the diamonds served reminder to the market of what Petra is best at doing.
The diamonds, recovered at the Cullinan mine in South Africa, range from 25.75 carats to 9.61 carats and would be assessed as individual stones rather than part of a single diamond.
“Blue diamonds are so rare that there are no official statistics on their recovery,” it said. The last blue diamond was recovered a year ago at Cullinan which has renown for that gem colour. “[I]t is therefore even more unusual to recover five high quality stones around the same time, all in the space of one week’s production.”
Petra would take “a flexible” approach to selling the diamonds given the travel constraints affecting diamond tenders globally as a result of the Covid-19 pandemic. Peer group companies such as Lucara Diamond Corporation and Lucapa Diamond Company, have sold diamonds in such a way that they share the risk of polished prices.