Last checked at 13 Jan 2010 07:00
| Immediate Release | 13 January 2010 |
Petra Diamonds Limited
("Petra" or "the Company" or "the Group")
Trading Update
Strong improvement in diamond prices
Production growth on track for FY2010
Petra Diamonds Limited announces the following sales and production trading update (unaudited) for the six months ended 31 December 2009 ("the Period") ahead of the publication of the Company's interim results for the Period on 22 February 2010.
The Company is on track to achieve its production target of 1.2 million carats for the 2010 financial year (FY2009 actual: 1,099,367 gross carats), with Group sales and production for the Period up 43% and 12% respectively on the six months to December 2008. Longer term, Petra's current expansion plan will take production to over 3 million carats per annum by 2019.
Highlights
Sales
* For the Period 1 July to 16 November 2009, Petra accounted for its interest in Cullinan under the gross method of proportional consolidation, recognising 50% of revenue and 13% minority interests. With effect from 17 November 2009, the date that Petra and Al Rajhi Holdings W.L.L. entered into the Cullinan option agreement, Petra consolidates 100% of revenue and 26% minority interests; had the basis of consolidation not been changed from 50% to 100% from 17 November, the revenue for the Period would have been US$42.3m, a 26% increase on the six months to 31 December 2008.
Production
Johan Dippenaar, Chief Executive Officer said:
"Petra has continued to consistently meet its operational targets and our production growth is on track as targeted for the 2010 financial year. The rough diamond market has improved significantly over the last six months and we have seen prices come back strongly at each of our six producing mines. Having recapitalised the business and consolidated the Cullinan holding in December, Petra is on a strong platform as we continue to grow annual production to over three million carats and increase our stature as a significant diamond producer."
Diamond market update
The rough diamond market recovered significantly in the Period, as evidenced by the increase in prices reported by Petra and other significant producers. The emerging consumer markets of India and China continued to expand and helped to take up the slack caused by the weaker US and European markets. However, analysts recently reported a rise in pre-Christmas sales of jewellery in the U.S., still the largest and most influential jewellery market in the world, as well as a rise in U.S. consumer confidence, boding well for the rough diamond market for 2010.
Crucially, confidence has returned to the rough diamond market, with financing now beginning to open again to the pipeline. The second half of 2009 saw the return of many of the more cautious participants to the market and Petra noted a strong increase in attendance at our tenders. Certainly levels of competition for rough diamonds are now much closer to normal levels and serve to underpin the stability of the market.
As we enter 2010, Petra's management believes the market to be in a much stronger position, particularly given that retailers and cutting centres will soon need to replenish their inventories in order to satisfy increased demand as global economic recovery continues.
Production and sales
The Period totals and breakdown per mine are given below.
Combined operations:
Cullinan, Koffiefontein, Fissure mines and Williamson
| Unit | 6 months ended 31 December 2009 | 6 months ended 30 June 2009 | 6 months ended 31 December 2008 | |
| Production* | ||||
| Diamonds produced | Carats | 614,594 | 546,031 | 550,413 |
| Sales* | ||||
| Revenue | US$M | 62.4 | 47.0 | 47.3 |
| Diamonds sold | Carats | 572,227 | 643,675 | 368,031 |
*all figures given on gross basis
Cullinan - South Africa
| Unit | 6 months ended 31 December 2009 | 6 months ended 30 June 2009 | 6 months ended 31 December 2008 | |
| Production | ||||
| Diamonds produced | Carats | 473,406 | 432,998 | 455,597 |
| Grade | Cpht | 42.1 | 40.2 | 41.2 |
| Sales | ||||
| Revenue | US$M | 40.2 | 24.3 | 26.9 |
| Diamonds sold | Carats | 461,365 | 486,832 | 293,831 |
| Average price per carat | US$ | 87 | 50 | 92 |
The Cullinan mine is famed for producing spectacular diamonds of historical importance and it continues to yield such gems under Petra management. In late September 2009, an important 507 white diamond was recovered of exceptional colour and clarity. The diamond is considered to be amongst the top 20 largest high quality rough diamonds ever found worldwide. It was recovered alongside three other special white stones of similar colour and clarity in the same production run: another large stone of 168.00 carats and two other stones of 58.50 and 53.30 carats. These three diamonds have now been sold for a combined revenue of US$9.1 million. Analysis of the best route to market for the 507 carat diamond in order to maximise value continues.
Mining and treatment activities at Cullinan continued in line with Petra's mining plan and 473,406 carats were produced for the Period. Some 461,365 carats were sold at an average value per carat of US$87, a substantial improvement in comparison to the US$50 achieved in the six months to June 2009 (up 74%), and further to a sustained recovery in the diamond market experienced in the second half of 2009.
The overall grade improved to 42.1 carats per hundred tonnes ("cpht") from 40.2 cpht, again in line with expectations. This was due to good control of the underground mining process, including management of drawpoints and waste dilution, as well as the ongoing plant modifications effected by Petra.
The large diamond recovery section has now been commissioned giving Petra the potential to increase the recovery of larger diamonds. The configuration has been set to cater for potentially world-class diamonds, such as the 'Cullinan' which weighed 3,106 carats, ensuring that the very large stones for which the orebody is famous can be recovered safely without danger of crushing in the plant process.
Petra is currently implementing an expansion plan at Cullinan which will take production from just under 900,000 carats in the 2009 financial year to 2.6 million carats by 2019. This expansion plan will eventually allow Petra access to the first portions of the major C-Cut resource, which has a well-established, major resource of some 133 million carats. Development work will commence in 2010 to access the initial, deeper production levels. In addition, design work for the new tailings treatment facility has also commenced with commissioning of this new facility planned for the 2012 financial year.
Koffiefontein - South Africa
| Unit | 6 months ended 31 December 2009 | 6 months ended 30 June 2009 | 6 months ended 31 December 2008 | |
| Production | ||||
| Diamonds produced | Carats | 31,015 | 14,289 | 37,800 |
| Grade | Cpht | 6.0 | 5.2 | 7.7 |
| Sales | ||||
| Revenue | US$M | 9.4 | 7.6 | 10.7 |
| Diamonds sold | Carats | 28,008 | 39,070 | 33,739 |
| Average price per carat | US$ | 337 | 195 | 318 |
At Koffiefontein, run-of-mine ("ROM") tonnes mined and treated were in line with expectations, and both production and grades have improved since the preceding six month period. Sales also improved to US$9.4 million, of which US$1 million was contributed by the sale of an exceptional 34 carat white diamond. The Koffiefontein mine is renowned for the regular production of such specials.
Petra sold 28,008 diamonds for the Period at an average value per carat of US$337, which again shows a marked improvement in comparison to the US$195 per carat achieved for the six months to June 2009 (up 72%).
Underground development at Koffiefontein continues. Slotting of the 52 Level production area has commenced and should be completed during February, with a continued improvement in grade expected as tonnages increase from this new area.
Treatment of tailings material also commenced during the Period with material being trucked to the main plant. The construction of the final section of the conveyor belt, which will deliver tailings material from the dump directly to the main plant, is in progress and increased tailings treatment is planned in the six months to 30 June 2010.
Post Period end, Petra regretfully announced a fatality at Koffiefontein further to an accident in an underground workshop. The safety of all employees is the most important priority for the Company and we extend our sincere condolences to the family of the deceased.
Fissure mines¹ - South Africa
| Unit | 6 months ended 31 December 2009 | 6 months ended 30 June 2009 | 6 months ended 31 December 2008 | |
| Production | ||||
| Diamonds produced | Carats | 41,815 | 33,576 | 37,698 |
| Grade | Cpht | 44.7 | 41.7 | 39.7 |
| Sales | ||||
| Revenue | US$M | 5.8 | 5.8 | 9.5 |
| Diamonds sold | Carats | 33,971 | 42,728 | 39,398 |
| Average price per carat | US$ | 172 | 136 | 240 |
¹ The Fissure mines comprise three mines in South Africa: Helam, Sedibeng and Star
Petra produced 41,815 carats at the Fissure mines for the Period, an 11% improvement in comparison to the six months to December 2008, and mainly attributable to the Helam mine returning to higher levels of production. In contrast, production at the Sedibeng mine was hampered by a two week long strike in September 2009 over wage demands.
The Company sold 33,971 carats in the Period for an average price of US$172, up 26% on the six months to June 2009. This price improvement is not as significant as at Petra's other operations due to the larger contribution from the Helam mine, which is the lowest value producer in the portfolio. The revenue achieved for the Period of US$5.8 million was substantially lower than the US$9.5 million recorded for the six months to December 2008 due to the sale of a 126.7 carat white diamond from Sedibeng in 2008 for US$5.2 million.
Mining operations continued on the same levels at the Helam and Star mines, but at Sedibeng, new production areas on Level 17 of the Dancarl mining area are being established and production will commence early 2010. Likewise, the development work to Level 18 at Sedibeng is on track to access new ore.
Costs - South Africa
Recent increases exceeding 30% in the cost of electricity in South Africa have adversely impacted the unit cost performance at the mines, as have above-inflation wage demands. Management continue to control costs across all operations and therefore the overall cost performance at the mining operations remained within management expectations. Improved unit costs are foreseen once the expansion plans already announced start yielding additional production.
Williamson - Tanzania
| Unit | 6 months ended 31 December 2009 | 6 months ended 30 June 2009 | 6 months ended 31 December 2008 | |
| Production from bulk sampling activities | ||||
| Diamonds produced | Carats | 68,358 | 65,168 | 19,318 |
| Grade | Cpht | 6.0 | 5.7 | 5.7 |
| Sales | ||||
| Revenue | US$M | 6.9 | 9.4 | n/a |
| Diamonds sold | Carats | 48,883* | 75,045 | n/a |
| Average price per carat | US$ | 141 | 125 | n/a |
Petra's bulk sampling programme at the Williamson mine proceeded throughout the Period and 68,358 diamonds were produced. A grade of 6 cpht was achieved, in line with the projected grades used in the Company's business plan for the mine. The planning and design work on the three year expansion programme has continued and is on track. The expansion programme is due to deliver a 10 million tonnes per annum operation, yielding 600,000 carats annually.
An average sales value of US$141 per carat was achieved for the Period, but Petra expects that the new plant and processing techniques to be introduced at the mine will bring about substantial improvements to diamond values in the future, and that values of US$200 per carat are achievable over the medium term.
* Diamond sales were only 48,883 carats for the Period, as a shipment of 14,931 carats that was due for tender in Antwerp in late November was stolen at OR Tambo International Airport whilst in transit. The Company is insured for such losses, and a claim has been lodged with the insurers. It is not Petra's policy to discuss the precautions it takes to safeguard its very valuable product, or to disclose the details of such a theft, but a review of all third party procedures has been undertaken with regard to all future shipments. Petra is confident that the insurance claim will be settled satisfactorily and does not expect the theft to have any material impact on the Group revenue target for the 2010 financial year.
Kimberley Underground
The acquisition of the Kimberley Underground mines is expected to complete soon. The process has been somewhat delayed further to the Christmas and summer holiday period in South Africa during December, but it is now expected to be finalised in the very near future. The only conditions for completion remaining to be satisfied are:
the cession of the converted New Order Mining Right; and
the subsequent registration thereof at the Mineral and Petroleum Titles Registration Office.
The Joint Shaft plant has been fully commissioned and is ready to commence treatment of the stockpiled material immediately following the completion of the acquisition with strong production and sales expected thereafter.
Construction work on the Wesselton plant will commence in 2010 and will be ready to treat ROM material early 2011.
Kono - Sierra Leone
The Kono project in Sierra Leone is a fissure diamond mining project at an advanced stage of exploration. The project was placed on care and maintenance in May 2009 due to adverse market conditions. Petra, and its joint venture partner Stellar Diamonds Limited ("Stellar Diamonds"), had commenced trial mining at two shafts during 2007 and had achieved positive results both in terms of average value per carat and continuity of grade. Furthermore, the project is in a highly prospective area for exploration with 17 kilometres of fissure strike identified to date.
The Kono project has been part of Petra's portfolio since the Company merged with Crown Diamonds NL in 2005. Since this time, Petra has acquired three major diamond kimberlite pipe mines (with a fourth, Kimberley Underground, soon to complete) and the Company's strategy has moved from an exploration to a production focus. As such, the Kono project is no longer considered to be core to Petra's portfolio and the Company is in active discussions to sell its share to Stellar Diamonds. An agreement is expected to be reached with Stellar Diamonds in this current financial quarter.
Corporate
Placing
In December 2009, Petra completed a successful placing to raise gross proceeds of US$120 million (£72.7 million). The funds raised have been applied to;
strengthen the Company's balance sheet by paying down existing debt (including the US$20 million convertible bond);
acquire a further 37% interest in Cullinan; and
bolster the Company's treasury, to finance the development of Cullinan and Williamson.
Acquisition of further 37% in Cullinan
Effective 17 November 2009, the Company increased its interest in the Cullinan mine to 74%, by acquiring the 37% interest held by Al Rajhi Holdings W.L.L ("Al Rajhi"). The consideration was satisfied by the issue to Al Rajhi of 36 million new Petra shares and a deferred cash consideration of US$35 million, payable December 2011.
Petra also took over responsibility for the US$80 million loan due to Al Rajhi in respect to the original acquisition and financing of the mine. This loan was reduced to US$50 million in December 2009 by the issue of 11.4 million new Petra shares to Al Rajhi and the payment of US$15 million cash. In early January 2010, a further US$6.8 million was paid to Al Rajhi by Petra from cash balances, further reducing the principal loan balance from US$50 million to US$43.2 million.
The increase in Petra's ownership of Cullinan to 74% increases the Group's attributable resource base from 119 million to 195 million carats.
Sale of Angolan assets
As at 1 July 2009, the Company had written down to zero the carrying value of the plant and equipment that remained in Angola following its withdrawal from the Alto Cuilo and Luangue projects. Although the assets were fully impaired as the Company considered the security of the assets to be an issue and their eventual sale to be remote, the Company is pleased to advise that all of the aforementioned assets were sold during the Period for US$3.8 million and the consideration (cash) has been received by Petra.
~ Ends ~
For further information, please contact:
| Cathy Roberts | Telephone: +44 20 7318 0452 |
| Petra Diamonds, London | cathyr@petradiamonds.com |
| Bobby Morse / James Strong | Telephone: +44 20 7466 5000 |
| Buchanan Communications | bobbym@buchanan.uk.com jamess@buchanan.uk.com |
| James Duncan / Nicola Taylor | Telephone: +27 11 880 3924 |
| Russell & Associates | james@rair.co.za nicola@rair.co.za |
| Mike Jones / Ryan Gaffney | Telephone: +44 20 7050 6500 |
| Canaccord Adams | mike.jones@canaccordadams.com ryan.gaffney@canaccordadams.com |
About Petra Diamonds
Petra Diamonds is a leading supplier of rough diamonds. A number of acquisitions have established Petra as one of the world's largest independent diamond groups by resources, with a gross resource base of 262 million carats. Petra increased its annual production fivefold in the year to June 2009 to over 1 million carats and the Company's objective is to continue to increase supply and develop its stature as a world-class diamond group.
In South Africa, Petra has interests in five producing mines - Cullinan, Koffiefontein, Helam, Sedibeng and Star - and has also agreed to acquire the Kimberley Underground mines from De Beers (this acquisition is expected to complete soon). In Tanzania, Petra has an interest in the Williamson mine.
These mines are noted for the production of valuable diamonds, but in particular the Cullinan mine is famed as the source of the largest rough gem diamond ever found. More recently, an internally flawless, fancy vivid blue diamond of 7.03 carats from the Cullinan mine sold for US$9.4 million, or US$1.35 million per carat, in May 2009 and a white diamond of over 507 carats was recovered in September 2009. A 168 carat white diamond recovered in the same production series as the 507 carat diamond was sold on 26 November 2009 for US$6.28 million.
Petra conducts all its operations according to the highest ethical standards, and will only work in countries which are members of the Kimberley Process.
The Company is quoted on the AIM market of the London Stock Exchange (AIM: PDL).www.petradiamonds.com