Petra Diamonds Bucks Negative Commodities Trend

LONDON-listed Petra Diamonds, which gets nearly all its earnings from four major diamond mines in South Africa, has bucked the negative trend in the commodity markets with increased production and profits for the year to end-June.

The group, which operates the Cullinan, Finsch, Koffiefontein and Kimberley Underground mines in South Africa, all of them bought from De Beers, confirmed that its expansion plans remained on track.

Petra increased production by 21% to 2.7-million carats, from 2.2-million carats in the year to end-June 2012, and CEO Johan Dippenaar said the company remained on track to increase production by a further 12% to 3-million carats in the current financial year and reach the stated target of 5-million carats by 2019.

The increase in production in financial 2013 was achieved in spite of a series of problems, including a delay in the Cullinan tailings project as well as grade volatility at that mine and the "labour relations climate in South Africa".

The forecast for further production increases in 2013 has been made despite the industrial action on some of Petra’s mines that started on August 29 but has now ended.

Mr Dippenaar said Petra’s production guidance for this financial year remained on track, "based on the strong production run rate with which Petra commenced financial 2014 and partial production during the industry action".

The results have been well received by London analysts, although the shares were little changed, trading around 120p on Monday morning.

Liberum Capital analyst Ben Davis said the results were a solid performance in line with Liberum’s estimate of earnings before interest, tax, depreciation and amortisation of $122m and consensus forecasts of $117m.

He said: "Pricing remains the key driver for the coming year. For rough diamonds, it is to remain steady with constrained supply, firmer US market demand, as well as continued growth in China, albeit at a lower rate than over recent years."

According to Numis Corporation analyst Cailey Barker: "Costs appear well in control with Cullinan coming in at R158 a tonne and Finsch at R139 a tonne. " Numis rates Petra as a "buy" with a price target of 160p a share.

Mr Dippenaar said he expected diamond prices to be stable during financial year 2014 with "potential for pricing upside" because of constrained supply and a firmer US market.

He said: "The supply side of the rough market remains tight with only around 30 kimberlite diamond mines of significance in the world today, many of which are past their peak production.

"In some cases, these major mines are making the transition from open pit to underground which further limits the potential volumes available. "This highly concentrated market is compounded by there being no ‘Tier 1’ discoveries over the last 20 years," said Mr Dippenaar.

http://www.bdlive.co.za/business/mining/2013/09/16/petra-diamonds-bucks-negative-commodities-trend