With diamond prices on the skids, Harry Winston Diamond Corp. (HWD) is likely left with no choice but to cut its dividend, says RBC Capital Markets analysts Irene Nattel and Stephen D. Walker.
"We now believe prices may fall up to 40% in Q4 F09 and F2010, resulting in diamonds at Diavik being sold for $50 to $60 per carat, said RBC Capital analyst Irene Nattel and Stephen D. Walker
As a result, they said the company is in real danger of becoming cash negative unless it can refinance $75-million of debt that comes due in 2009.
The dire situation could mean Harry Winston will cut its dividend, the analysts added, saving about $10-milllion per year by trimming its payout from 20¢ to 5¢ per share.
But even with a dividend cut, the diamond miner and retailer will be saddled with financing challenges into next year. Ms. Nattel and Mr. Walker downgraded the stock from "outperform" to "sector perform" and cut drastically cut their price target from $13 to $5.
Shares in Harry Winston are down 13% at midday on Monday.