The Cullinan diamond
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» Petra pins hopes Cullinan's longevity
» Petra pencils in 1m/year in carats


No weaker prices for smaller diamonds yet
Allan Seccombe
Posted: Mon, 28 Jul 2008

[miningmx.com] -- SUPPLIES of diamonds will remain tight and expectations of prices falling for smaller lower quality stones have yet to be seen by Petra Diamonds, said CEO Johann Dippenaar.

Petra, which has made three acquisitions from De Beers, posted a 359% jump in revenue to R76.6m in the year of end-June 2008, predominantly because of the Koffiefontein purchase from the world’s largest rough diamond producer. It brought the mine on stream in July 2007.

Koffiefontein diamonds were sold at an average $478/carat, which is five times the global average of around $90.
aim to become a world leading diamond producer
Petra is also wrapping up the Kimberley underground and Cullinan mine deals with De Beers.

"Our aim to become a world leading diamond producer will take a further step forward with the integration of the Cullinan mine and the Kimberley Underground mines into the Petra group, which will raise production fourfold to over one million carats per annum by the financial year to June 2009," said chairman Adonis Pouroulis.

De Beers, which bought out results last week, said it expected demand for the smaller, lower quality stones to be “subdued” because of tough economic conditions in the largest market for such stones, the United States. It forecast strong demand for larger stones.

“We are in broad agreement with De Beers and we’re watching developments in the United States to see if, and by how much, it will affect prices next year,” Dippenaar said during a conference call.

Demand for the smaller stones in Asia, particularly China and India, appeared to be offsetting declines in the United States, he said. “Whereas everybody says the smaller-end goods are in danger of dropping in price, we’re not experiencing that at all.”

The flow of diamonds onto the market is not robust. De Beers, for example, forecast output of 50 million carats in 2008 against production of 51.1 million carats last year.

“What would have been a naturally declining supply to the market has been further exacerbated by production problems the big producers are experiencing at their mines,” Dippenaar said.

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Petra’s sales jumped 87% year-on-year to 230,172 carats. It has Koffiefontein and three fissure mines.

Jamie Strauss, an analyst with BMO, said the yield at Koffiefontein, an underground kimberlite mine, was higher than the market had been led to expect at 9.1 carats per hundred tonnes and questioned whether this was sustainable.

“We feel confident this number can be sustained in the future,” Dippenaar said. He pointed to historical production records where grades were high and he said these would ensure Petra could continue producing at 9 carats per hundred tonnes.

Petra sold four diamonds for $5.4m out of gross revenue of $75m. This showed the company was not relying on extraordinary stones to generate income and that it had a good spread of diamond production, he said.

Costs at Petra were $15/tonne and should remain within that region in the coming year, he said.