Petra Diamonds (LSE: PDL) has seen its share price detonate in Thursday business following a positive reception to financing news. The stock was last 7% higher from the mid-week close.
Petra Diamonds announced that it would issue $600m in senior secured second lien notes due in 2022. The notes would be used to refinance the company’s existing $300m, 8.25% senior secured second lien notes due in 2020, the company advised, as well as to repay all drawn bank facilities and for general corporate purposes.
In addition to this, it announced plans to enter into new bank facilities to provide additional liquidity, which will remain undrawn on closing of the offering of the 2022 notes.
“The group’s new capital structure provides Petra with financial flexibility, with no drawn debt maturities until 2022,” Johan Dippenaar, the firm’s chief executive, commented.
“This represents a further step forward in the next phase of the Company’s development as the eight year capital expenditure programme at the Group’s flagship Finsch and Cullinan mines nears completion,” he added.
Production powers up
Petra is investing huge sums to create new caves at its two gigantic South African mines, and the company announced in January that Finsch’s Block 5 SLC and Cullinan’s C-Cut Phase 1 projects had churned out maiden production in recent months.
The company saw production during the six months to December shoot 24% higher as a result, to 2,015,087 carats.
With production powering higher the City expects Petra Diamonds to recover from two consecutive earnings dips in the period to June 2017, and a 38% bottom-line rise is currently pencilled-in. An extra 84% bounce is predicted for fiscal 2018.
Not only does a forward P/E ratio of 12.2 times for this year look extremely appealing on paper, but a PEG reading below one — at 0.3 — illustrates the digger’s great value relative to its projected growth trajectory.
With diamond prices showing tentative signs of recovery, many investors may well consider Petra a commodities play worth betting on at present.
In a hole
I do not believe the same sort of optimism can be extended to diversified digger BHP Billiton (LSE: BLT) however, the market outlook for its key commodities becoming ever-more worrisome.
BHP warned last month that iron ore prices, for example, are “likely to come under pressure in the short term from moderating Chinese steel demand growth, high port inventories and incremental low cost supply.”
These factors have conspired to drive iron ore values — by far its largest market and responsible for four-tenths of group earnings — to their cheapest since mid-January in recent days. I expect further weakness to transpire as the heady price ascent of last year begins to unwind.
Square Mile brokers share my glass-half-empty take, and expect a projected 534% earnings explosion for the period to June 2017 to represent a mere flash in the pan, an 11% drop predicted for the following fiscal year.
Sure, a forward P/E ratio of 10.8 times at BHP may be cheaper than that of Petra. But I reckon the healthier state of the stones markets makes the latter a superior choice to its iron-producing peer.
