Shares in Petra Diamonds have slumped 7% after the FTSE 250 miner reported a disappointing set of results. The company warned that legal challenges in Tanzania could mean it breaches its debt covenants once again.
The stock slid to 77.50p in early trade after Petra warned that failure to resolve a dispute with the Tanzanian government over diamond exports. May result in it breaching two of its covenant measures.
Petra Diamonds has said it will cut investment in Tanzania if it is prevented from shipping stones to its overseas marketing office. As tensions between foreign-owned mining companies and the government mount.
The company said it would “monitor the situation very closely and take decisive action if required”.
Petra had already warned in June that it was in talks with its lenders. After suffering a six-month delay at one of its major projects. Resulting in it missing production guidance for the year.
The London-listed company halted operations at its Williamson mine last week after the government seized a parcel of diamonds for export on suspicion they were undervalued.
“We won’t be stupid and just keep on pumping in money if it’s clear it will come to naught.” chief executive Johan Dippenaar said.
Although Petra has restarted production at Williamson following a four-day shutdown. It could breach its banking covenants if it cannot resume exports by the end of the year. The company has net debt of $555m [£411m].
The Tanzanian parliament recently enacted laws giving the government more power to control its natural resources. It has hit fellow FTSE 250 gold miner Acacia with a $190bn [£140bn] tax bill – many times greater than its $1bn [£739m] annual revenue. The government has prevented it from exporting powdered gold concentrate. Resulting in a 66pc fall in the Acacia’s share price since March.
Analysts at Investec added that Petra would need to achieve “major deleveraging” in the second half of its financial year to meet its targets. “That should be just about achievable if the company suffers no misses or unanticipated challenges,” they added.