[miningmx.com] — AFTER spending the past few weeks in the limelight following the acquisition of Finsch mine, it was back to reality for Petra Diamonds on Monday when it posted a lacklustre results performance.
Reporting financials for the interim period to end-December, Petra posted a net profit of $24.5m, down 35% from the previous period’s $37.9m. However, income from its core mining activities rose more than threefold to $24.5m ($8m to end-December 2009), reflecting its increased stake in Cullinan mine. Revenue jumped from $48.4m to $90m, also on the back of Petra’s bigger share in Cullinan.
Muddling a straightforward appraisal of Petra’s numbers, the previous net profit figure included a $31m fair value adjustment for Cullinan, while the most recent period makes provision for an unrealised foreign exchange gain of $20.9m. The previous period also contained a negative $4m fair value adjustment to investory.
“The devil is in the detail as the accounting for its interest in Cullinan has changed,’ Libertas analyst Roger Bade said in a note to clients.
Bade said although the results read well, one could argue that as the foreign exchange gain was just more than earnings before interest, taxes, depreciation, and amortisation ($20.2m) and 85% of the net profit figure, the numbers were unimpressive.
“However, this is a group in transition and subject to considerable growth potential, but at the end of the day this does have to be converted into cash, shareholder earnings and dividends,’ said Bade.
Production was lower at 582,102 carats (614,594 carats in the previous period), which the company attributed to the planned termination of operations at its Tanzanian mine Williamson and the depletion of high grade tailings at Cullinan.
Petra’s production is set for a lift-off after it agreed to buy Finsch mine from De Beers in January, raising funds to the tune of $325m ($210m to go towards to acquisition). CEO Johan Dippenaar said he expected the regulatory processes related to the acquisition to be completed by April.
With the inclusion of Finsch, Petra hopes to incrementally increase annual production from the current 1.1 million carats to over 5 million carats in 2019, of which Cullinan and Finsch combined will contribute about 80%.
Petra plans to spend $67.9m and $158.8m respectively during 2011 and 2012 on expansion capex, of which $3.7m and $58m would go towards Finsch.
BULLISH MARKET
Dippenaar said the current strength in the market is based upon firm fundamentals and is driven by retail off-take as well as inventory demand from polishers and manufacturers.
Petra’s February 2011 tender prices confirmed the continued strength of the rough diamond market with a rise in prices of between 6% and 8%, compared to an average achieved during the period under review.
De Beers recently reported retail diamond jewellery demand grew by about 8% globally. However, China and India recorded double-digit growth of 25% and 31% respectively.
With only 30 diamond mines of significance globally, analysts expect a significant supply deficit to emerge during the next three years.
