Myles McNulty Profile picture
Feb 16 25 tweets 10 min read
@PetraDiamondsIR #PDL is now at 96p / £186m and threatening to break out. It's in touching distance of the post-restructuring, intra-day high of 97.5p, with blue skies above.

Interim results are due out next Wednesday.

A basic summary of the investment case ⬇️

#PDL is a diamond miner, with interests in 4 mines:

3 underground mines in South Africa (all 74% owned), namely: Cullinan, Finsch, and Koffiefontein;

1 open pit mine (75% owned) in Tanzania, named Williamson.

The mines were all acquired from @DeBeers between 2007-11.

The mines had all suffered from underinvestment when owned by @DeBeers. As such, between 2006 and 2019, #PDL invested approximately $1.6bn in improving the operational efficiencies of the mines and in extending their lives.

Much of this came in the form of debt...

...culminating in $650m of senior loan notes issued in April 2017 (5-year term at 7.25%).

A new CEO joined in 2019. He quickly launched "Project 2022" in July of that year, to further drive efficiencies and improvements across #PDL.

Improvements in cash generation would..

..become most evident in '21 / '22 - the initial target of Project 2022 was $150m to $200m in FCF in the three FYs from July '19 to June '22 (30 June YE).

Alas, just as #PDL was visibly improving, the pandemic struck. Demand for diamonds plummeted.

#PDL itself realized diamond prices for FY 2020 of -18% YoY.

This was devastating for the biz: operational cash flow for the year was -$12.3m, whilst net debt position at end June '20 was $697m.

The company had to radically restructure its balance sheet, just to survive.

Debt holders would convert a substantial portion of their loans into equity.

They would become 91% shareholders; existing equity holders would be left with 9% of the enlarged share capital.

Proposed publicly in October '20, the restructuring completed in mid March '21.

From an eyewatering net debt position of $700m at 31 Dec '20, #PDL's net debt fell to $291m as at 31 March '21.

Q1 of CY 2021 also coincided with a recovery in diamond prices. Numerous factors drove this: on the supply side, @RioTinto closed its Argyle mine in Australia...

...which accounted for 10% of global production in 2020; the Ekati mine in Canada (~4% of global output) endured a 10-month-long suspension of operations; and Indian processing plants (90%+ of global cutting/polishing) ground to a halt during the pandemic.

Moreover, the demand side saw "renewed consumer interest in diamonds, driven by lack of competition from other luxuries such as experiences and travel." ⬇️…

"Consumers were ready to spend. They were flush with cash from buoyant capital markets...

...and economic stimulus programs, and eager to spend it on meaningful gifts for their loved ones." ⬇️…

The inelasticity of the supply side has resulted in prices continuing to rocket in '22, which show no signs of slowing.

What has this meant for @PetraDiamondsIR?

Higher $ per carat = revenues are increasing sharply.

In H2 CY 2020, #PDL recorded sales of $178.1m; in H2 CY 2021, sales were $264.7m - an increase of 49% YoY.

In those timeframes, production only increased 3.8%.

12/25 Image
Combined with a dramatic reduction in interest payments following the balance sheet restructuring, #PDL has transformed from a cash guzzler into a cash cow.

From end March 2020 to end December 2020, PDL's net debt increased $33.1m per quarter, on average.

13/25 Image
From end March 2021 to end Dec 2021, #PDL's net debt DEcreased $45.7m per quarter, on average.

And diamond prices continue to surge ⬇️

At the current cash gen. rate, PDL could turn net cash positive in Q4 this year.

By end of next year, it could have generated close...

14/25 Image its current market cap in cash.

So what are the downsides?

Let's start with the very obvious: underground mining in South Africa, and open pit mining in Tanzania. What could possibly go wrong?!

Recent examples of the very real risks of such operations:

Cullinan: in Sept. last year, the mine experienced tunnel convergence. This could have affected as many as 10% of the draw points in the mine, which would have impacted on production (thankfully, rapid action was taken to mitigate).

Finsch: ingress of waste rock has...

...been unpredictable, leading to failures to hit prod. guidance.

Koffiefontein: perennially lossmaking!

Williamson: artisanal miners constantly encroaching. There's a violence history between them and security forces at the mine.

The largest notable threat to PDL's...

...operations, however, is in whether it can extend the Life of Mine plans.

Its two flagship mines, Cullinan (62% contribution to FY 20/21 group revenue) and Finsch (31% contrib.), currently run for 9 more years, to 2030.

Williamson in Tanzania runs to end 2033.

18/25 Image
Koffiefontein's (7% contribution to group rev.) Mine Plan, however, comes to a close at the end of next year.

From the above table, it's evident there are ample resources at all of the mines to extend the Plans considerably: can #PDL convert those resources into reserves?

In July last year, #PDL launched another major initiative: Business Re-engineering Projects at both Finsch and Koffiefontein. The purpose?

"To comprehensively review and improve the mines’ cost bases and enhance operating margins at current throughput levels."

The outcomes of these BREs will be detailed in #PDL's interim results next week.

N.B. Whilst mgmt has stated it is confident that these will be a success, it certainly should be considered an immediate term risk to the SP, in the (unlikely) event that the BREs aren't...


Koffiefontein hasn't generated more than $30m revs for the past 4 years (and has been a major cash drain throughout), and so isn't material.

Finsch, however, cold be restored to glory: in FY 2017/18 it generated an operating profit of $68m on revs of $232m.

In Tanzania, #PDL is in the process of reducing its exposure to Williamson from 75% equity interest to 31.5% (with private contractor, Caspian, set to take a 31.5% stake, and the Tanz. Gov. to increase its stake to 37%).

Given that the last time it turned a profit was...

23/25 2017/18, and given the constant troubles caused by illegal miners, this seems prudent.


To summarize the #PDL investment case:

A classic turnaround play, after a transformational restructuring, that will see @PetraDiamondsIR move from $700m net debt...

24/25 the beginning of 2021, to possibly being in a net cash position by the end of 2022.

The immediate priority: will the Business Re-Engineering Project at Finsch be a success? We shall find out next week.

In the meantime though, Cullinan will continue to print cash.


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More from @MylesMcNulty

Feb 18
Rare earth elements continue to fly largely under the radar of the investment community.

The reason being that they're used in traction motors of EVs, and not the ever-discussed batteries.

The key REE, Neodymium, is now up 376% since 1 July '20.

Valuation check on #MKA ⬇️

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@MkangoResources is due to complete its bankable feasibility studies for each of its rare earths mine in Malawi (Songwe Hill), and its separation plant in Poland, by the end of next month.

Details have been scarce, but #MKA has indicated the intended output of the...

...mine and separation plant - which is more than double that of the output suggested in the 2015 pre-feasibility study.

Presumably with a little guidance from #MKA mgmt, @MkangoResources' broker provided some very basic headline numbers of how the integrated operations...

Read 8 tweets
Jan 28
The contrasting opinions on @avacta's valuation on FinTwit is fascinating.

Those who think #AVCT is overvalued, just can't seem to get their heads around the possibility that a £250m British biotech could be on the cusp of revolutionizing cancer treatment.

The bull case⬇️

#AVCT has four platform technologies:

1) Affimer Diagnostics
2) Affimer Therapeutics
3) pre CISION
4) TMAC (a combo of 2+3)

The purpose of this thread is to focus on and explain pre CISION and its potential value. This is the greatest near-term value driver for @avacta.

pre CISION - what is it? The most basic of explanations would be:

"Chemotherapy with dramatically reduced side-effects."

Chemotherapies are highly effective treatments for cancer, and have been used for decades. The issue with them, however, is that their effects are...

Read 26 tweets
Jan 17
There are so many ways to arrive at the conclusion that #AVCT's valuation is nonsensical.

Another, beyond the below, is to look at #APTA - owner of a first generation antibody mimetic platform, Aptamers - that recently listed on AIM.

On Friday it surpassed £100m mkt cap. 1/14
For each of its past two FYs, #APTA has generated no more than £1m in revenue.

The Affimer platform is a next generation antibody mimetic platform. It was "engineered to overcome many of the problems associated with aptamers or with antibodies". ⬇️

To my knowledge, #APTA (or its partners) has not put in place manufacturing capacity of 30+ million per month to sell propreitary, Aptamer-based SARS-CoV-2 LFTs.

#AVCT has.

So @avacta not only possesses a next gen., superior antibody mimetic platform; but from it has...

Read 14 tweets
Jan 14
@PapaDoc3333 @TrivChannel Thanks Malcolm, very kind.

The air of failure surrounding #AVCT this week on Twitter and the bulletin boards - largely from non- and ex-holders - is truly mystifying.

We will have a very good idea of whether the pre CISION platform is working, in the coming few weeks…

@PapaDoc3333 @TrivChannel …either from dose escalation in AVA6000 P1a; or from candidate selection for AVA3996.

One vital, silver lining of #AVCT’s RNS on Monday:

Alastair Smith has made it very clear that he is a man of integrity. He could have allowed M19 to continue selling MeduFlow in the EU, 2/n
@PapaDoc3333 @TrivChannel … and continue with their application to the FDA for EUA (home-use) in the US - whilst improving the strip simultaneously in the background.

All other LFT providers are doing this, after all.

The fact that AS didn’t tells us two things:

1) he will inform the market of…

Read 6 tweets
Dec 2, 2021
I came to appreciate long ago that AIM is an inefficient and irrational market.

But the share price of @avacta this week takes the biscuit. Following Monday's RNS, I was convinced we'd be at ATHs by now.

My explanation for what I think the market is missing on #AVCT ⬇️

On Monday, #AVCT announced that it had received FDA approval for its Investigational New Drug ('IND') application, to expand its Phase I clinical trial for AVA6000, into trial sites in the US.

The timing of the submission and the length of review are critical.

The FDA has a 30-day review and turnaround time. Given #AVCT announced the approval this Monday, owing to LSE disclosure laws we must assume it received the approval sometime between Friday and Sunday.

Give a few days for post / admin / comms delays, and we can assume...

Read 25 tweets
Dec 2, 2021
Happy with @Tirupatiuk's H1 results. The growth rate really is incredible, despite not being reflected to a great degree in the financials (yet).

When the acquisition of TSG completes (subject to Reserve Bank of India's approval), #TGR takes off.

Firstly, #TGR's upstream mining operations.

The very small 'proof of concept' Sahamamy plant - 3,000t pa.

It only operated at 2/3 of nameplate capacity in H1 (1,060t produced; 950t sold) owing to various Covid restrictions.

Even so, it achieved a gross margin of 54%.

The second plant, Vatomina, is three times the size, at 9,000t pa. It came online this Q.

A third plant, Sahamamy 2, is now under development, and is coming online within 6 months. It will have capacity of 18,000t pa.

#TGR's nameplate capacity as at 01.07.2022: 30kt pa.

Read 20 tweets

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