JOHANNESBURG (miningweekly.com) – Petra Diamonds’ share price on the LSE fell more than 16% on Wednesday, as the company reported on its production figures for the first quarter of the 2016 financial year.

Production rose 1% year-on-year to 842 796 ct, which the company described as a solid start to the year.

The miner was targeting production of 1.5-million carats for the first six months of the current financial year and between 3.3-million and 3.4-million carats for the full year.

The company would aim to increase output to five-million carats in the 2019 financial year.

For the quarter under review, higher production was achieved at the Finsch, Koffiefontein and Kimberley Underground mines, while the Cullinan and Williamson mines recorded decreases in output of 31% and 20% respectively.

Petra noted that the diamond market continued to be impacted by excess polished inventory in the pipeline, a slowdown in demand, particularly from China, and financing and profitability issues in the midstream.

“However, steps have been taken by the major diamond producers to reduce supply to the market, via production cuts and reduced sales volumes.

“Encouragingly, retail demand remains stable in the US and the core retail festive season should see diminished polished inventories and improved trading conditions in the second half of the financial year,” it added.

Further, it said the longer-term outlook for the rough diamond market was positive, given the continued growth in demand from the developed and emerging markets.

The company, meanwhile, noted that its expansion programmes, including the Cullinan plant project, remained on track and in line with expectation.
 
“Petra’s focus remains on the maintenance of a healthy balance sheet, the tight control of costs and the successful roll-out of our expansion plans, which will deliver the first significant input from the higher-quality production areas from the second half of 2016 onwards. These measures will assist the company to withstand uncertain market conditions,” CEO Johan Dippenaar commented.

Investec analyst Marc Elliot commented that Petra’s results were encouraging, but that there were some warning signs. “Operationally, all appears on track, although we note some weakness in Cullinan’s grade and volumes.

He added that the company’s growth profile should outweigh concerns over the health of the diamond market as volumes ramped up. “If future quarters reflect continued operational delivery, the stock should re-rate materially,” he said.

SP Angel commented that Petra’s shares were vulnerable to selling pressure as worries persisted about Chinese demand.