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Petra reports rise in H1 revenue, profit

19th February 2015

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – Southern Africa-focused diamond miner Petra Diamonds on Thursday reported a 16% increase in revenue to $214.8-million for the six months ended December 31, while its profit rose 21% to $92.9-million, owing to higher run-of-mine (RoM) output at its Finsch, Koffiefontein, Kimberley Underground and Williamson mines.

The sale of two large diamonds recovered at the Cullinan mine had contributed significantly to the company’s revenue. A 232 ct white diamond of “excellent” colour and clarity had sold for $15.2-million, while a 122 ct blue diamond was sold into a beneficiation partnership, with Petra receiving $23.5-million for an 85% share in the stone, and retaining a 15% interest in the polished yield.

The blue diamond was being cut and polished by Petra’s partner and was expected to produce several polished blue stones.

Although production for the period had decreased by 2% to 1.6-million carats, a strong contribution from the Finsch mine, together with other production initiatives that were coming on line across Petra’s operations, had prompted the diamond miner to raise its production guidance for the full financial year by 100 000 ct to about 3.3-million carats.

Petra CEO Johan Dippenaar noted that the company had achieved strong first-half results, as it continued to deliver on its growth strategy. “Our expansion programmes are on track at all operations and production is expected to grow to five-million carats by 2019.

“While the diamond market remains under pressure, there are encouraging signs that we are seeing a stabilisation in market conditions, as evidenced by good demand levels at our first tender in the second half of this financial year.

“Our continued growth trajectory and robust financial position places Petra in a good position to capitalise on the attractive medium- to long-term fundamentals [of] our industry,” he said in a statement.

The company further reported a 22% increase in earnings before interest, taxes, depreciation and amortisation to $84.9-million, a 38% rise in net profit to $39.1-million and a 162% increase in adjusted operating cash flow to $50.4-million.

This year would be a transitionary period that marked the last financial year in which the company would be reliant on production from the mature mining areas at Finsch and Cullinan. “Given the production challenges of operating from these mature mining areas, it was a good achievement to meet overall production of 1.6-million carats,” Petra noted.

In light of the strong outlook for the company and Petra's robust financial position, it declared a maiden dividend of 2p a share for the full financial year, “which is a major milestone in the development of our company”, it said.

PRODUCTION
The Aim-listed company’s Finsch mine, 160 km north-west of Kimberley, performed well in the six months under review, with overall increased carat production of 4% to 1.01-million carats, driven by higher RoM grades.

The on-mine unit cash cost per ton treated of R160 was in line with guidance of R157, and 12% higher than the R143 achieved in the first half of the prior financial year, owing to inflationary cost increases.

Further, capital expenditure (capex) of $39.5-million – up from $24.7-million in the first half of the prior financial year – was in line with guidance and the progression of the expansion project and associated underground development.

“As the mine's production profile gradually changes from diluted to undiluted ore, the RoM grade is expected to increase to 46 carats per hundred tons (cpht) by 2016 and to 58 cpht from 2017 onwards. This was up from previous guidance of 56 cpht, more accurately reflecting the impact of the plant changes.

Petra’s Cullinan mine, meanwhile, recorded a 15% decrease in diamond production to 391 398 ct, owing to the RoM grade of 25.8 cpht being lower than guidance of 27.4 cpht for the first half of the year.

As there were no separate waste handling facilities at the mine, all development waste had to be treated through the main plant with the RoM production tonnages, which led to plant treatment and final recovery overloads.

“In the short term, this remains challenging given that the expansion programme is at an advanced stage, with a high level of development metres being achieved, thereby producing a significant amount of development waste material,” the company said.

Petra expected the mine’s RoM grade to gradually increase going forward, owing to a declining volume of waste tonnes from development, a gradual increase of the initial undiluted tonnes and its initiatives to open up access to higher-grade mining areas in the second half of the financial year.

Cullinan’s on-mine unit cash cost per ton treated of R152 was 3% lower than the corresponding period’s R147, but higher than guidance of R138, owing to a reduction in planned tailings tonnes treated.

At its Koffiefontein mine, RoM production increased by 6% to 9 709 ct, as kimberlite development in the 560 mL SLC yielded the first undiluted RoM tonnes from this new production area. “However, overall production decreased by 30% largely owing to the scheduled depletion of recovery tailings treated in the comparative period,” it noted.

Capex of $13.5-million was spent at the mine, primarily focused on underground development.

Meanwhile, the Williamson mine, in Tanzania, achieved a 15% increase in output to 98 949 ct in the six months under review.

Expansion activities at the mine would result in the mine’s output increasing to 300 000 ct/y in the 2017 financial year.

EXPLORATION
Petra's exploration programme in Botswana remained focused on the evaluation of the KX36 kimberlite discovery, as well as the search for and the assessment of other kimberlites in its current prospecting licence areas.

Petra completed an initial large diameter drilling (LDD) campaign in 2013, which rendered a total of 285 ct. This programme was followed up in 2014 by a third phase of narrow diameter drilling to improve delineation of the KX36 pipe and to provide additional geological and geotechnical information.

The company was now carrying out a second phase of LDD bulk sampling in the second quarter of this year, to obtain a further 720 ct for a more representative diamond parcel of 1 000 ct, which will be used for further resource modelling and diamond value determination.

A modular 10 t/h bulk sampling plant was being commissioned on site and results from this drilling programme would be available in 2016.

OUTLOOK
After 2019, Petra expected to maintain production volumes at around five-million carats a year, and would, in the next two years, come to market with additional growth plans.

He added that the supply and demand fundamentals held a “very compelling” case to remain “essentially intact”.

“No new finds have been made [since the 1990s] and [it is] only the 30 [major kimberlite diamond mines] that produces the bulk of the diamonds in the world. We see declining production all over. Smaller projects are coming online, adding maybe five-million to eight-million carats a year. [This reflects] a world market of 130-million carats to 135-million carats a year, staying flat in the years to come,” Dippenaar said in a webcast.

He noted that rough diamonds retailers were seeing the same picture and joining the ranks of primary diamond miners, ensuring that they “are right there at the source, to ensure that they get the supply”.

New mines coming on stream in the next few years would also not be large enough to counter lower output from the world’s major producers, the company predicted.

On the demand side, Dippenaar noted that the US remained Petra’s most important market. “Things are going very well in that market, which is great for diamonds because you have high sales of mass luxury goods,” he said.

However, he noted that the Chinese and Indian markets would also be “very important markets in future”.

“The Chinese market, we believe, will grow very strongly in future, with the government moving the economy more towards being consumer driven, which will bode well for diamond pricing,” he said.

Dippenaar added that diamond jewellery as a “special gift” was also gaining more acceptance in the larger cities in China, already standing at 70% in Beijing and Shanghai.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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