Yahoo Finance Petra Diamonds battles to shore up finances with £133m cash call to investors
Petra Diamonds will look to raise £133m from shareholders as the miner battles to keep its debt pile under control and stop it busting vital agreements with its lenders.
The company, primarily based in South Africa, has announced a rights issue that will see it release 332m new shares, or five new shares for every eight already in existence.
The new shares will be priced at 40p, a 35.6pc discount to the stock’s closing price of 62.15p on Wednesday.
Petra will use the lion’s share of the funds raised to pay down its net debt, which stood at $622m (£464m) in April, with around $58m being used to top up its day-to-day expenses, which have spiralled due to the rising value of the rand against the US dollar.
Petra warned that without the cash call it may not have enough working capital to last beyond the next 12 months, as it would breach covenants with its lenders.
It has urged investors to back the move at a special general meeting to be held on June 13.
Petra shares fell 15pc, to the bottom of the FTSE All-Share Index, as investors weighed the likely dilution of their stakes.
Under the terms of a rights issue, shareholders will be forced to buy the new shares or risk owning a smaller slice of the company. The deal is fully underwritten by RBC, Barclays and BMO, meaning the banks will buy up any shares not taken by investors.
Johan Dippenaar, chief executive, blamed rising costs and operational problems at some of its mines for resorting to a capital raise. The transaction would make a “substantial dent” in its leverage - the ratio of its borrowings to its market value - he said, while providing “strong cash headroom”.
Petra had sounded out some of its major shareholders ahead of the move, who had indicated “very strong support”, Mr Dippenaar added.
The chief executive admitted its Kimberley and Koffiefontein mines had “under-performed” and that were no “holy cows” when it came to changing management or parachuting in staff from other operations to turn things around.
Petra has borrowed heavily in recent years to fund underground expansion at its five diamond mines, which were acquired from industry giant De Beers. They include the historic Cullinan mine, which produced some of the gems in the Crown Jewels.
The miner suffered another blow last year when the Tanzanian government seized a parcel of diamonds worth $15m from its Williamson mine in a dispute over how the stones were being valued. The company warned today the lost revenue from the parcel, alongside its failure to recoup VAT from the government and other costs, would add up to $35-$40m.
“There’s no legal or any other reason why we should not see the parcel again, it’s just that the process is taking longer than expected,” Mr Dippenaar said.