Petra Notes Rough Diamond Price Pressure Due to Liquidity, Polished Inventory, Strong USD

Image: Haul truck at Petra's Williamson open pit mine in Tanzania. Source: Petra Diamonds Ltd


January 31, 2015
By Paul Zimnisky


On January 28th, 2015, Petra Diamonds (LSE: PDL) released operating results for the six months ending December 31, 2014, the company’s fiscal first-half 2015.  

Company-wide production decreased 2% from the comparable period a year ago, primarily due to lower grades realized at the company’s Cullinan mine and power outages in South Africa which led to temporary production halts at the company’s tailings operations. 

Petra has 5 primary diamond mines, all of which are located in South Africa except for the Williamson mine, which is located in Tanzania. Petra owns 74% of its South African mines, and 75% of Williamson.   

Petra’s largest mine by production volume and value, Finsch, produced 1.01M (million) carats during the 6-month period ending in December, a 4% YOY increase.  The production increase was primarily driven by better grades and higher recovery of small diamonds.  For the period, Finsch fetched on average $85 per carat, which is an 11% decrease over the comparable period a year ago ($96/ct for the six months ending December 31, 2013).

Cullinan produced 391K carats in the period, a 15% YOY decrease.  The decrease in production was attributed to lower grades recovered because of plant treatment and final recovery overloads.  According to the company, mining higher grade areas over the next 6 months should reduce the impact of this problem.  The average price of Cullinan diamond sold during the period was $247/ct a 65% YOY increase ($150/ct for the six months ending December 31, 2013).

An exceptional 232-carat white diamond recovered at Cullinan in September sold for $15.2 million ($65,577 per carat).  Excluding the sale of this stone and other exceptional diamonds recovered at Cullinan during the period, the mines average price per carat was only $124/ct, a 17% decrease from the comparable six-months a year ago.

Williamson produced 99K carats during the period worth $322/ct, a production increase of 15% YOY as plant throughput increased. Kimberly underground produced 72K carats during the 6-month period worth $321/ct. Koffiefontein produced 10K carats during the period, which sold for an average price per carat of $389.

Company wide, Petra’s average price per carat sold during the period versus a year ago was up 12.1%, however excluding exceptional stones recovered at Cullinan, the company’s average price per carat decreased 9.2%.  Petra noted pricing pressure in the rough diamond market marked by “issues related to liquidity,” “polished inventory levels,” and “the impact of the strong U.S. Dollar on U.S. Dollar denominated diamond prices.” This week Gem Diamonds announced an 18% decrease in rough prices realized in Q4 2014 versus Q4 2013, and ALROSA results showed a 16% price decrease over the same period. 

Petra also announced that it will pay maiden dividend in the amount of £0.02 for the fiscal year ending in June 2015, which currently equates to a yield of 0.01% using the closing stock price on January 30th.  Last year, mid-tier producer Lucara Diamond Corp (TSX: LUC) commenced an annual dividend program of C$0.04 plus a special exceptional stone dividend of C$0.04. Lucara currently yields 3.8% (1.9% not including a special dividend).



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