[miningmx.com] — PETRA Diamonds will double production in its current 2012 financial year, according to CEO Johan Dippenaar. Despite this prediction its share price has underperformed, dropping from 190 pence in late April to around 149p.
Ahead of this the share had a dramatic run, trebling from levels of around 60p last September.
Financial director David Abery attributed the weakness mainly to the present “torrid” state of the European bourses on which Petra is listed.
“Petra is one of the most liquid of the diamond stocks, which means investors can sell it during times of market risk. That’s the main reason for the drop in our share price.
“But there are also unfounded concerns in London over the delay in completion of Petra’s acquisition of the Finsch mine from De Beers.”
The last condition precedent holding that deal up is approval by the department of mineral resources (DMR) of the Section 11 cession of the mining right from De Beers to Petra.
Petra announced the delay in May and Dippenaar commented in the trading statement that closure was expected “in the coming weeks”.
Abery said: “Investors appear to be on tenterhooks over that, which is the result of the kind of negative coverage on South Africa that you see in the overseas press.
“They seem to be linking those broader concerns to the Finsch deal and we must have been asked about this 50 times today.
“In reality it’s all going well with the DMR and a South African audience would have a far better understanding of the situation.”
Petra shares rose to around 154p after the release of Tuesday’s trading update, which reported a 24% rise in gross mine revenue to $220.6m in the year to end-June on the back of a 4% rise in diamond volumes sold to 1.17 million carats – although production was 4% down at 1.1 million carats (2010 financial year – 1.2 million carats).
The previous year’s results were boosted by the “exceptional” sale of the 507 carat Cullinan Heritage diamond. If that amount is stripped out, financial 2011 earnings would have been 55% higher.
According to UK institution Numis, the production number was “slightly disappointing” but Petra’s outlook remains positive.
Another UK institution – Fairfax – commented that “Petra Diamonds continues to be our favoured mid/large tier diamond producer”.
Dippenaar maintains Petra remains on track to reach production of 4 million carats in financial 2014 and more than 5 million carats by financial 2019.
He attributed the drop in production during 2011 to a number of factors. These include a management strategy of concentrating on the recovery of larger, higher value diamonds at the expense of greater volumes of lower grade diamonds.
The average price realised on sales from the Cullinan mine rose to $148/carat ($101/carat excluding the Cullinan Heritage) while at Koffiefontein average prices rose to $564/carat ($402/carat).
Dippenaar’s “conservative’ predictions on average prices for financial 2012 are that Cullinan should realise $170/carat and Koffiefontein $600/carat.
Dippenaar said rough prices rose “substantially” in all categories, but there was “exceptional growth” in small gem diamond prices because of the trend to use smalls across a wide range of luxury goods, in particular watches.
He said: “Liquidity in the pipeline has continued to improve and has added further confidence to the rough diamond market.
“Most industry commentators expect this strong rough market to continue as supply struggles to keep pace with demand. The backdrop to the supply side remains the same, in that the world’s major diamond mines are in decline and cannot maintain previous high levels of output.
“Whilst some new mines are coming on stream in the coming years, there is nothing of significant size to make up for this shortfall. Meanwhile, demand for diamonds continues to rise in both established and new markets.”
There was no production from the main pit at the Williamson mine in Tanzania during the year because of the expansion project under way to increase output to 10 million tonnes (mt) per year.
But a new development is that Petra has opted to carry out an “enhanced re-build” of the existing 3mt/year plant instead of just refurbishing it as previously planned.
The commissioning of this rebuilt plant has already started; it is expected to be in full output by the end of December and produce some 90,000 carats in financial 2012.
