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Petra Diamonds, due to report next week, has been trying to convince the investment world that its business is secure and potentially still a profitable one to invest in. The production of the second largest diamond it has mined in its history was being waved around last month ahead of April earnings which may be a further slap in the face for investors.

The diamond in question is estimated to be worth somewhere between $25 million and $30 million, which is admittedly a lot of money for a small rock. That’s a big chunk of the Petra Diamonds London market cap of GBP 148 million!

But Petra Diamonds shares are currently trading at 16.89p (Friday lunchtime), which is a year low for the miner which was once commanding prices in 80-82 range last summer.

Royal Bank of Canada seems to be a lone voice in the wilderness expounding the hidden delights of Petra Diamonds’ Cullinan mine. Analyst Tyler Broda reckons there is more to come from the mine, and that further finds will help Petra to offset a lackadaisical market in cheaper diamonds.

But the discovery of a big landmark stone like this one does not seem to have done much for the Petra Diamonds share price, which still looks sluggish.

Is Petra Diamonds really a sector performer?

RBC still has Petra as a sector performer, but most of the rest of the brokers are much more cautious. Barclays Capital has reiterated an overweight stance while Berenberg has Petra Diamonds as a hold. The target price in the last three months has been indicated as anywhere between 22 and 30, which still means you could potentially double your money on what looks on the surface like a relatively cheap stock.

Petra seems to be thinking about betting the house on Cullinan and shareholders are getting restless as a result. They tried to remove the firm’s founder and chairman Adonis Pouroulis at the 2018 AGM, with 22% voting against his re-election. Petra Diamonds has also brought in gold mining veteran Richard Duffy who it is to be hoped will be able to turn things around a the firm.

Cullinan is the jewel in Petra’s crown – it was where the world’s biggest ever diamond was discovered in 1905. But while some analysts have been ogling the gems, the company has also been posting a net loss after tax of $203 million last year, and there is also the small matter of the $66 million impairment charge from its Koffiefontein mine.

The other concerning issues are the accumulation of debt and an investigation into alleged wrongdoing in the tanzanite and diamond fields of Tanzania.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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