Petra Diamonds "in-line" As Diamond Market Remains Under Pressure

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Petra Diamonds grew production by 98 per cent to 2

,208,862 carats in the year to 30 June 2012, as the addition of the Finsch mine started to make an impact. Broker Numis described output as "bang in-line" with its estimates. Revenue of $316.9 million increased by 44 per cent over the previous financial year.

Petra conceded that the rough diamond market "has been volatile during the year, with prices declining from July to December 2011; a temporary recovery was seen in Q3 FY12 to 31 March, before prices weakened again, further to deteriorating global economic conditions".

Petra expects the rough diamond market to remain under pressure in the short term. However, the company's view is that the medium to long-term outlook for diamond prices remains positive due to the well-reported supply/demand fundamentals.

Meanwhile, the group's expansion projects at Finsch, Cullinan and Koffiefontein are progressing well.
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At Finsch, the expansion programme is in the detailed planning and design phase. Petra has mobilised contractors to commence with development on the declines, the shaft deepening tender process has progressed and this contract will be awarded shortly.

At Cullinan, the shaft deepening contractor has commenced development work on site, with the first blasts having taking place. Development work on the new northern decline has commenced and the south decline is well advanced. Construction of the new tailings plant is nearing completion and is on track for commissioning in the autumn, with the re-crush section to follow later in the year.

At Koffiefontein, the revised mining layout has been finalised and detailed design has commenced. Development work on the underground tunnel infrastructure is ongoing.

Capital expenditure of $134 million is within the company's expectations and consistent with the roll-out of the expansion programmes. Cash operating unit costs/tonne were reported to be "well controlled".

At 30 June, Petra had $37.4 million of cash at the bank and diamond stocks worth around $24.3 million. Loans and borrowings at year end stood at $69.2 million, with available undrawn facilities of US$79 million. Petra is in discussions with its bankers to restructure its debt requirements given that the Finsch mine was not part of the group when the original financing was put in place.

Petra also announced that it has, in conjunction with its black economic empowerment (BEE) partners, decided to sell its fissure mine operations, comprising the Helam, Sedibeng and Star mines in south Africa.

Petra's chief executive, John Dippenaar, commented: "The Fissure mines produce high value stones and under the right ownership they have the potential to deliver strong returns for many years to come, whilst at the same time providing employment to the communities in the surrounding areas." The sale process will commence shortly.

Broker Canaccord Genuity views the "results as positive, especially in light of global macro conditions". The broker described this as "a solid operational update, hitting guidance and maintaining solid operational performance". Canaccord also sees the proposed sale of the fissure mines as "a positive step towards focusing management time on the company's key assets".

The broker maintains its Buy recommendation and 183p price target.

by: Martin Li

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