Petra Diamonds Limited is on track to achieve its production target of 1.2 million carats for the 2010 financial year (FY2009 actual: 1,099,367 gross carats), with Group sales and production for the six months to December 2009 period up 43% and 12% respectively on the six months to December 2008. Longer term, Petra’s current expansion plan will take production to over 3 million carats per annum by 2019.
Production
Petra Diamonds’ gross production was up 12% for the six months to December 2009 to 614,594 carats (H1 2008: 550,413 carats). The net increase in production was mainly due to ramp-up of production at Cullinan, where an important 507 carat white diamond, considered to be amongst the top 20 largest high quality rough diamonds ever found worldwide, was recovered. Expert analysis indicates the stone is of exceptional colour and clarity and Petra is assessing the route to market for this very rare diamond.
Johan Dippenaar, Chief Executive Officer said: “Petra has continued to consistently meet its operational targets and our production growth is on track as targeted for the 2010 financial year. The rough diamond market has improved significantly over the last six months and we have seen prices come back strongly at each of our six producing mines. Having recapitalised the business and consolidated the Cullinan holding in December, Petra is on a strong platform as we continue to grow annual production to over three million carats and increase our stature as a significant diamond producer.”
For the period 1 July to 16 November 2009, Petra accounted for its interest in Cullinan under the gross method of proportional consolidation, recognising 50% of revenue and 13% minority interests. With effect from 17 November 2009, the date that Petra and Al Rajhi Holdings W.L.L. entered into the Cullinan option agreement, Petra consolidates 100% of revenue and 26% minority interests; had the basis of consolidation not been changed from 50% to 100% from 17 November, the revenue for the six months to December 2009 would have been US$42.3m, a 26% increase on the six months to 31 December 2008.
Diamond market update
The rough diamond market recovered significantly in the six months to December 2009, as evidenced by the increase in prices reported by Petra and other significant producers. The emerging consumer markets of India and China continued to expand and helped to take up the slack caused by the weaker US and European markets. However, analysts recently reported a rise in pre-Christmas sales of jewellery in the U.S., still the largest and most influential jewellery market in the world, as well as a rise in U.S. consumer confidence, boding well for the rough diamond market for 2010.
Crucially, confidence has returned to the rough diamond market, with financing now beginning to open again to the pipeline. The second half of 2009 saw the return of many of the more cautious participants to the market and Petra noted a strong increase in attendance at our tenders. Certainly levels of competition for rough diamonds are now much closer to normal levels and serve to underpin the stability of the market.
As we enter 2010, Petra’s management believes the market to be in a much stronger position, particularly given that retailers and cutting centres will soon need to replenish their inventories in order to satisfy increased demand as global economic recovery continues.
Mining and treatment activities at Cullinan continued in line with Petra’s mining plan and 473,406 carats were produced for the six months to December 2009. Some 461,365 carats were sold at an average value per carat of US$87, a substantial improvement in comparison to the US$50 achieved in the six months to June 2009 (up 74%), and further to a sustained recovery in the diamond market experienced in the second half of 2009.
The overall grade improved to 42.1 carats per hundred tonnes (“cpht”) from 40.2 cpht, again in line with expectations. This was due to good control of the underground mining process, including management of drawpoints and waste dilution, as well as the ongoing plant modifications effected by Petra.
The large diamond recovery section has now been commissioned giving Petra the potential to increase the recovery of larger diamonds. The configuration has been set to cater for potentially world-class diamonds, such as the ‘Cullinan’ which weighed 3,106 carats, ensuring that the very large stones for which the orebody is famous can be recovered safely without danger of crushing in the plant process.
Petra is currently implementing an expansion plan at Cullinan which will take production from just under 900,000 carats in the 2009 financial year to 2.6 million carats by 2019. This expansion plan will eventually allow Petra access to the first portions of the major C-Cut resource, which has a well-established, major resource of some 133 million carats.
Development work will commence in 2010 to access the initial, deeper production levels. In addition, design work for the new tailings treatment facility has also commenced with commissioning of this new facility planned for the 2012 financial year.
At Koffiefontein, run-of-mine (“ROM”) tonnes mined and treated were in line with expectations, and both production and grades have improved since the preceding six month period. Sales also improved to US$9.4 million, of which US$1 million was contributed by the sale of an exceptional 34 carat white diamond. The Koffiefontein mine is renowned for the regular production of such specials.
Petra sold 28,008 diamonds for the six months to December 2009 at an average value per carat of US$337, which again shows a marked improvement in comparison to the US$195 per carat achieved for the six months to June 2009 (up 72%).
Underground development at Koffiefontein continues. Slotting of the 52 Level production area has commenced and should be completed during February, with a continued improvement in grade expected as tonnages increase from this new area.
Treatment of tailings material also commenced during the six months to December 2009 with material being trucked to the main plant. The construction of the final section of the conveyor belt, which will deliver tailings material from the dump directly to the main plant, is in progress and increased tailings treatment is planned in the six months to 30 June 2010.
Petra’s bulk sampling programme at the Williamson mine proceeded throughout the six months to December 2009 and 68,358 diamonds were produced. A grade of 6 cpht was achieved, in line with the projected grades used in the Company’s business plan for the mine. The planning and design work on the three year expansion programme has continued and is on track. The expansion programme is due to deliver a 10 million tonnes per annum operation, yielding 600,000 carats annually.
An average sales value of US$141 per carat was achieved for the six months to December 2009, but Petra expects that the new plant and processing techniques to be introduced at the mine will bring about substantial improvements to diamond values in the future, and that values of US$200 per carat are achievable over the medium term.
Diamond sales were only 48,883 carats for the six months to December 2009, as a shipment of 14,931 carats that was due for tender in Antwerp in late November was stolen at OR Tambo International Airport whilst in transit. The Company is insured for such losses, and a claim has been lodged with the insurers. It is not Petra’s policy to discuss the precautions it takes to safeguard its very valuable product, or to disclose the details of such a theft, but a review of all third party procedures has been undertaken with regard to all future shipments. Petra is confident that the insurance claim will be settled satisfactorily and does not expect the theft to have any material impact on the Group revenue target for the 2010 financial year.
[...] shipment consists of diamonds from Petra Diamonds’ Williamson mine. When Petra released their half-yearly figures , it included the following [...]