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Petra Diamonds shares fall on discounted US$178M rights issue to cut debt

Shares in Petra Diamonds Ltd. fell May 24 after it announced plans to raise up to US$178 million through a 5-for-8 fully underwritten rights issue to cut its debt and for working capital. It will issue 332,821,725 shares at 40 pence each, 36 pence below the stock's closing level May 23. Shares were down 16% in midday London deals.

The company said its financial position had been weakened by the delay in bringing online a new plant at the Cullinan project in South Africa, which had a knock-on impact on its ability to ramp up production at the new C-Cut Block Cave there and resulted in an operating cash flow deficit of about US$130 million.

In addition, the combined effect of a blocked parcel of 71,654.45 carats from the Williamson mine in Tanzania, a delay in recouping value-added tax receivables from Williamson and costs incurred due to legislative changes are estimated to cost the company between US$35 million and US$40 million.

Together with the impact of a strong South African rand, these factors have led to the company's debt levels being higher than anticipated and have hurt its ability to deleverage.

Up to US$120 million will be used to fully pay down outstanding drawn debt with the South African Lending Group, including an about US$80 million balance drawn under a revolving credit facility and about a US$40 million balance under a working capital facility. The balance will go toward working capital.