According to Petra Diamonds Limited unaudited interim results for the six months to 31 December 2009, the company’s gross mine revenue was up 32% to US$62.4 million from US$47.3 million in the second half of 2008. Petra Diamonds’ Group attributable revenue was up 43% to US$48.4 million, against the US$33.8 million recorded in the six months to 31 December 2008. A direct comparison of Group revenues between the periods is complicated due to the increased interest in Cullinan acquired during the period. Had this not occurred, the Group revenue for the period would have been US$42.3 million, still a considerable increase on the six months to 31 December 2008.
Johan Dippenaar, Chief Executive Officer, comments, “These strong trading results demonstrate that Petra Diamonds has made significant progress during the period, with increased diamond production in a rough diamond market that continues to strengthen. The Company is in a robust financial position, combining profitable mining operations with a well-capitalised balance sheet. Our priority now is to deliver on our core objective to expand production at each mining asset, taking annual production from one million to over three million carats, and further enhance our profile as the unique growth opportunity in the diamond sector.”
“The Period under review marked a recovery from one of the most difficult trading periods ever encountered by our industry. It is a testament to the quality of Petra’s asset base and our efficient management structures that the Group has weathered this severe downturn and emerged in a robust financial position. Our operations were net cashflow positive even at the very bottom of the cycle and they are now on track to generate strong cashflows in what is a significantly stronger diamond market,” says Adonis Pouroulis, Chairman of Petra, adding, “Petra’s core strategy is to deliver on our capital rollout, taking production from one million to over three million carats per annum by 2019. We believe this will place the Group in a unique position to capitalise on what we anticipate to be an exciting future for the diamond market.”
Mining and processing costs
Mining and processing costs (before depreciation) for the South African operations increased in ZAR terms by approximately 11% due to upwards pressure on electricity and labour costs experienced for the Period. In US$ reporting terms, mining and processing costs have increased further due to the strengthening of the Rand during the Period by approximately 13.5%, the consolidation of 100% of the mining and processing costs for Cullinan from 17 November 2009, and the inclusion of Williamson for the full six month period.
Mining profit
A profit on mining activity of US$8.0 million was recorded for the Period, against a profit of US$10.2 million for the corresponding period. Rough diamond prices only began to strengthen midway through the Period and therefore the stronger prices now being achieved at Petra’s tenders, the sale of the 507 carat diamond this month and the full consolidation of Cullinan’s earnings from November 2007 will bode well for the profit from mining activities in the six months to June 2010.
Cash and debt
As at 31 December 2009, Petra had cash at bank of US$65.0 million and diamond inventories of US$34.8 million; loans, borrowings, trade creditors and the deferred Cullinan consideration totalled US$128.3 million. Subsequent to the Period end US$30 million was applied to settle December trade creditors and further reduce other group debt. The sale of The Cullinan Heritage will complete on Friday 26 February and is expected to substantially boost Petra’s treasury, leaving the Group in a strong financial position.
DIAMOND MARKET
The diamond market made a strong recovery over recent months due to a number of positive factors and rough diamond prices are now close to the averages recorded in the 2008 financial year before the global economic slump. This buoyant market is underpinned by strong demand across all rough diamond categories. In particular, it is encouraging to note the increasing demand for the smaller pique (lower quality) material which is typically used for mass market jewellery in the important US market.
Whilst there are positive signs of recovery in the US market, the growth in demand for diamonds is primarily being driven by India and China, which overtook Japan in 2009 to become the world’s second largest consumer of diamonds. This rapid growth is exciting for the industry, particularly since the discerning Chinese market tends to favour higher value and better quality diamonds, which are in increasingly scarce supply.
On the supply side, the market remains tight due to the cutbacks in supply from the major producers. Whilst global production will gradually increase again this year, market commentators are not forecasting supply to return to the peak production of circa 160 million carats achieved in 2008. This is largely due to the fact that most of the world’s important diamond mines have now passed their peak and cannot maintain previous high volumes, as well as the fact that there have been no new significant diamond discoveries since the early 1990′s.
Petra’s strong growth profile, with all assets in expansion mode, will ensure that the Company is poised to benefit from these exciting future supply/demand fundamentals.
Petra Diamonds is a leading supplier of rough diamonds, with a gross resource base of 262 million carats. The Company offers a unique growth profile within the diamond sector, increasing its annual production fivefold in the year to June 2009 to over 1 million carats, and with firm plans in place to grow production to over 3 million carats.
In South Africa, Petra has interests in five producing mines – Cullinan, Koffiefontein, Helam, Sedibeng and Star – and has also agreed to acquire the Kimberley Underground mines from De Beers (this acquisition is expected to complete soon). In Tanzania, Petra has an interest in the Williamson mine.
Petra conducts all its operations according to the highest ethical standards, and will only work in countries which are members of the Kimberley Process. The Company is quoted on the AIM market of the London Stock Exchange (AIM: PDL).
Related posts:
- Petra Production Tops 1.1 Million Carats
- Petra Diamonds Limited Raises US$120 Million
- Exceptional 168 Carat White Cullinan Diamond Sold for US$6.28 Million
- Petra Diamonds Appoints Dr. Omar Kamal as Non-Executive Director; Volker Ruffer Retires
- Petra Diamonds: 58 and 53 Carat Cullinan White Diamonds Sold
