Petra Diamonds mulls sale of loss-making Koffiefontein mine

South Africa’s Petra Diamonds (LSE: PDL) is exploring options to offload its loss-making Koffiefontein diamond mine in the home country, which is scheduled to reach the end of its life in 2025.

The company’s preference is to sell Koffiefontein, which had a gross resource base of 5.3 million carats as of June 30, 2021. These resources included 1.1 million carats in the indicated resource category accessible through underground mining. “It may be feasible for another owner to extend the mine’s life,” Petra said.

The focus of this disposal process, it noted, would be to identify a technically and financially suitable buyer, able to unlock further value from Koffiefontein, located in South Africa’s Free State province.

Petra said if it can’t find a buyer or another suitable option for the underground operation, it will close it once it reaches the end of its productive life.

The company noted is already undertaking a process of “right-sizing” the mine, which is likely to involve layoffs.

BMO Capital Markets analyst Raj Ray said that given Koffiefontein currently comprises only about 1% of Petra’s production base and has a limited remaining reserve life, it makes sense for management to consider selling the asset and refocus resources towards its core operations — Cullinan and Finsch.

Turned the corner

Burdened by debt and falling revenue, the company to put itself up for sale in 2020, but reversed the decision later, opting instead for a debt-for-equity restructuring. 

The move allowed Petra to cut net debt by two-thirds in the fiscal year ended June 30, 2021 to $228 million, down from just under $693 million the previous year.

The diamond producer also resorted to shrink its share in the Williamson mine in Tanzania, currently mothballed, from 75% to 63% as part of a framework agreement with the country’s government.

The company’s chief executive Richard Duffy said earlier this year the company had turned the corner following a revival in rough diamond prices, as well as self-help efforts aimed at reducing net debt.

He noted that Petra was on track to meet 2022 production guidance of 3.3 million to 3.6 million carats, while capital expenditure was expected to be at the lower end of the guidance of $78 million to $92 million.