Miner Petra Diamonds to raise $178 million to cut debt, cope with strong rand

Mining firm Petra Diamonds said on Thursday it would raise $178 million (133 million pounds) from investors to cut debt after it was hobbled by a strong South African rand, delays in production, strikes and a confiscated consignment of diamonds.

Its London-listed shares sank 14 percent to 65 pence by 0907 GMT.

Workers at Petra's South African operations downed tools in September over wages and the Tanzania government confiscated a consignment of diamonds, which has still not been returned.

There were also delays in ramping up production at its Cullinan and Finsch mines in South Africa and a lack of refunds on value-added-tax (VAT) from the Tanzanian government.

New shares would be offered at 40 pence, a 35.6 percent discount to the theoretical ex-rights price of 62.15 pence calculated in reference to the closing price on Wednesday.

Petra, which operates five mines, would use up to $120 million from the cash call to pay down debt and the balance will buffer Petra's working capital from the strength in the rand.

"The net proceeds from the rights issue will be used to accelerate a reduction in leverage to a more sustainable level, strengthen the balance sheet and increase the financial flexibility of the group," the company said in a statement.

Petra's debt rose to $622 million in April from $500.2 million at the end of March 2017. It was forced to seek waivers from its lenders three times to avoid breaching its debt covenants.

The company is targeting a reduction in the leverage of 2 times or less net debt to core earnings or EBITDA by the end of 2020.

"The possibility of a rights issue has long been rumoured but we had assumed that Petra would have sufficient liquidity post the renegotiation of their debt covenants on our estimates," Liberum analyst Ben Davis said.