Trading Update - Six months e

RNS Number : 3010Z

Petra Diamonds Ld

12 January 2011

 



 

 

For immediate release	12 January 2011
	AIM: PDL

Petra Diamonds Limited

("Petra" or the "Company" or the "Group")

Trading Update - Six months ended 31 December 2010

Petra Diamonds Limited announces the following sales and production trading update (unaudited) for the six months ended 31 December 2010 ("the Period"), ahead of the publication of the Company's interim results for the Period on 21 February 2011.

Gross mine revenue was up 44%, mainly attributable to increased production from the Cullinan, Kimberley Underground and Koffiefontein mines, coupled with stronger prices achieved for the Period due to the sustained recovery in the rough diamond market. Total production for the Period was 582,102 carats and the Company is on track to achieve its production target of circa 1.3 million carats for the 2011 financial year (FY 2010 actual: 1,164,856 carats).

Longer term, Petra's core objective is to double annual production to around 2.5 million carats by FY 2014 and further increase output to well over 3 million carats by FY 2019. All expansion plans required to achieve that target are progressing well.

Highlights

Sales

·     Gross mine revenue* up 44% to US$90.0 million (H1 FY 2010: US$62.4 million)

·     Group mine revenue* up 87% to US$90.0 million (H1 FY 2010: US$48.2 million)

·     Gross carats sold up 2% to 584,234 carats (H1 FY 2010: 572,227 carats)

·     Revenue growth due to increased production from South African operations and stronger rough 
diamond prices achieved during the Period

* Further to the acquisition of an additional 37% interest in the Cullinan mine in November 2009, Petra now consolidates 100% of all mine revenue. Up until 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).

Production

·     Gross production of 582,102 carats (H1 FY 2010: 614,594 carats)

·     The decrease in production was due to the planned roll-out of the expansion programme at 
Williamson (down 59,050 carats on H1 FY 2010; there was no production from the main Williamson pit for the Period due to the closing of the production plant for refurbishment), coupled with the planned depletion of the high-grade optical sorting plant ("OSP") tailings resource at Cullinan during the preceding period (down 25,859 carats on H1 FY 2010), partially offset by increased production from the other operations (in total up 52,417 carats on H1 FY 2010)

·     Outlook for H2 FY 2011:

o  Steady state production expected across South African operations, augmented by 
increased production from Kimberley Underground

o  Limited production from the refurbished plant at Williamson during the fourth quarter of 
FY 2011 when commissioning will commence

Corporate

·     US$83m debt facilities in place with IFC and RMB

·     Repayment in full of Al Rajhi Holdings W. L. L. ("Al Rajhi") loan (US$30.7 million) and accrued 
interest

·     Effective interest in Koffiefontein mine increased from 70% to 74%

·     Black Economic Empowerment ("BEE") partner introduced at Helam mine; ownership is now 
74% Petra and 26% BEE partner; all Petra South African operations are fully compliant with BEE legislation

Johan Dippenaar, Chief Executive Officer, said:

"The strong growth in revenue for the Period reflects the strength of the market and the positive rough diamond price environment, which is underpinned by continued growth in demand from emerging markets, particularly China and India, as well as by the steady recovery in the US market. Petra continues to invest in its operations and our core objective to double annual production to around 2.5 million carats by FY 2014 and to increase production further to over 3 million carats by 2019 remains firmly on track."

Conference call

The Company will host a conference call on Wednesday 12 January 2011 at 09:30am (London, UK time) to discuss its Trading Update with investors and analysts. Participants may join the call by dialling one of the following three numbers, approximately 10 minutes before the start of the call:

From UK (toll free): 0800 368 1895

From South Africa (toll free): 0800 983 097

From rest of the world: [phone]

Participant pass code: 580976#

A live audio webcast of the call will be available on:

http://mediaserve.buchanan.uk.com/2011/petra120111/registration.asp

A replay of the webcast will be available on the same link from 11am (London, UK time) on Wednesday 12 January 2011.

Diamond market update

At the time of the Company's preliminary results in September, Petra stated that rough diamond prices were expected to remain stable, but that there were expectations of a significantly improved end to the year due to the festive buying season. The market has performed as anticipated and rough prices across all diamond categories continued to strengthen towards the end of the Period.

The major diamond producers assisted this price environment by continuing to supply the market in a responsible manner and the relative scarcity of rough diamonds ensured increasing levels of competition from both dealers and manufacturers to secure quality goods. Rough diamond price rises were also driven by a slow but steady improvement in the major US retail market, coupled with continued exciting demand growth from China, India and the Far East.  Most importantly, demand in these markets is coming from retail customers, rather than re-stocking cutting centre and manufacturing inventories.

The liquidity within the diamond pipeline improved dramatically throughout 2010 and bank debt in the industry appears to have now reduced to manageable levels. Polished diamonds are also selling well and prices are increasing. Initial reports indicate that polished sales in the US will be better than previously expected and polished traders are anticipating healthy activity going forward in 2011.

The fundamentals of the rough diamond market remain robust and we anticipate continued strength in rough prices for at least the first six months of 2011. This trend will be enhanced should 2011 mark a return to global inflation and growth, given that diamonds are characterised as a late-cycle commodity play.

Petra's tenders in South Africa continue to be very well attended and competition for places is such that the Company is usually unable to accommodate all those who wish to participate. Given the wide range of goods now offered by Petra, and the consistent proportion of 'special' stones, many of the industry's top manufacturers are now Petra clients.

Production and sales

The production and sales results for the Period (both Group totals and breakdown per mining operation) are listed below and are all given on a gross basis.

Combined operations:

(Cullinan, Koffiefontein, Kimberley Underground, Fissures, Williamson)

	Unit	6 months ended 31 December 2010	6 months ended 30 June 2010	6 months ended 31 December 2009
Sales
Revenue	US$M	90.0	115.3¹	62.42
Diamonds sold	Carats	584,234	552,871	572,227
Production
ROM³ diamonds	Carats	533,912	503,819	547,054
Tailings & alluvial diamonds	Carats	48,190	46,443	67,540
Total diamonds	Carats	582,102	550,262	614,594

Notes:

·         ¹ The revenue for H2 FY 2010 included the sale of the 507 carat Cullinan Heritage diamond for US$35.3 
million

·         ² Further to the acquisition of an additional 37% interest in the Cullinan mine in November 2009, Petra now consolidates 100% of all mine revenue. Up until 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)

·         ³ 'ROM' = 'run-of-mine'

Sales for the Period were up 44% on H1 FY 2010, further to additional diamond input from the South African operations, coupled with a sustained recovery in the rough diamond market and corresponding stronger prices achieved for the Period. In addition, the Company sold a number of exceptional diamonds, including:

·     A 61.9 carat white diamond for US$2.9 million

·     A 137.4 carat white diamond for US$1.7 million

·     A 36.7 carat white diamond for US$1.1 million

·     A 2.71 carat blue diamond for US$130,000 (US$47,970 per carat)

·     A 2.04 carat blue diamond for US$111,889 (US$54,847 per carat)

Group production was down slightly by 5% on H1 FY 2010 further to the planned temporary suspension of production from the main pit at the Williamson mine, whilst the existing plant is being refurbished, coupled with the planned depletion of the high-grade OSP tailings resource at Cullinan, where the tailings operation is now focusing on the lower-grade ROM tailings. However, the Company remains on track to achieve its production target of circa 1.3 million carats for FY 2011. Petra's growth rate will start to accelerate at a faster rate from FY 2012, once production from the Williamson open pit comes back online, Kimberley Underground production ramps up and the expansion plan at Cullinan progresses further.

Cullinan - South Africa

	Unit	6 months ended 31 December 2010	6 months ended 30 June 2010	6 months ended 31 December 2009
Sales
Revenue	US$M	57.8	86.8¹	40.2
Diamonds sold	Carats	481,049	442,496	461,365
Average price per carat	US$	120	197¹	87
ROM Production
Tonnes treated	Tonnes	1,187,058	1,158,466	1,002,461
Diamonds produced	Carats	439,989	421,813	419,480
Grade	Cpht²	37.1	36.4	41.8
Tailings Production
Tonnes treated	Tonnes	263,092	124,962	123,418
Diamonds produced	Carats	28,067	32,712	53,926
Grade	Cpht	10.7	26.2	43.7
Total Production
Tonnes treated	Tonnes	1,450,150	1,283,408	1,125,879
Diamonds produced	Carats	468,056	454,525	473,406
Grade	Cpht	32.3	35.4	42.0

Notes:

·      Petra has a 74% interest in Cullinan (BEE partners 26%)

·         ¹ The revenue for H2 FY 2010 included the sale of the 507 carat Cullinan Heritage diamond for US$35.3 million

·      ² 'Cpht' = 'carats per hundred tonnes'

·      ³ Further to the acquisition of an additional 37% interest in the Cullinan mine in November 2009, Petra now consolidates 100% of all mine revenue. Up until 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)

The Cullinan mine generated sales of US$57.8 million for the Period, up 43% on H1 FY 2010. The average value per carat achieved for the Period was US$120 for the usual ROM production and was only slightly influenced by 'special' diamond sales.

ROM production from underground mining operations increased by 18% to 1,187,058 tonnes, whereas diamond recoveries increased by 5% to 439,989 carats compared to H1 FY 2010. This was caused by an 11% drop in grade due to the maturity levels of the block cave where the mining operations are currently taking place. However the ROM grade actually improved over the Period when measured against the six months to 30 June 2010.

Petra's development plan at Cullinan involves the establishment of a new block cave on the north-western side of the orebody. Once this has been achieved, the Company will be drawing fresh, undiluted ore and the overall mining grade is expected to increase from circa 37 cpht to 50 cpht (in line with achieved historical grades).

Petra continues to ramp up a major tailings operation at Cullinan to exploit the vast 165 million tonnes tailings deposit at surface (estimated to contain 16.5 million carats). Although tailings throughput was doubled to 263,092 tonnes during the Period, diamond recoveries from tailings dropped by 48% to 28,067 carats as the Company now focuses on the processing of lower grade ROM tailings material. This follows the planned depletion of the higher-grade OSP tailings dump in the preceding period.

Koffiefontein - South Africa

	Unit	6 months ended 31 December 2010	6 months ended 30 June 2010	6 months ended 31 December 2009
Sales
Revenue	US$M	17.2	13.4	9.4
Diamonds sold	Carats	36,669	28,699	28,008
Average price per carat	US$	470	467	337
ROM Production
Tonnes treated	Tonnes	463,852	423,796	460,262
Diamonds produced	Carats	27,390	24,270	28,756
Grade	Cpht	5.9	5.7	6.2
Tailings  Production
Tonnes treated	Tonnes	338,594	187,842	55,872
Diamonds produced	Carats	7,110	4,975	2,259
Grade	Cpht	2.1	2.6	4.0
Total Production
Tonnes treated	Tonnes	802,446	611,638	516,134
Diamonds produced	Carats	34,500	29,245	31,015
Grade	Cpht	4.3	4.8	6.0

Note:

·      Petra has a 70% interest in Koffiefontein (BEE partners 30%); Petra has a further 4% interest in the 
Koffiefontein Mine Unincorporated JV via its 13.33% shareholding in Re Teng Diamonds (Pty) Ltd (held by Petra's wholly owned subsidiary Blue Diamond Mines (Pty) Ltd), taking its total interest in the Koffiefontein Mine Unincorporated JV to 74%

At Koffiefontein, revenue increased by 83% in comparison to H1 FY 2010 and by 28% in comparison to the six months to 30 June 2010. The average value per carat increased by 40% to US$470 from the US$337 achieved in H1 FY 2010; a significant achievement given the fact that increased tailings production for the Period (producing lower value goods) will have diluted overall unit prices.

ROM production increased to 463,852 tonnes when measured against H1 FY 2010, and although the number of ROM carats recovered decreased over the same period due to the mining of lower grade, diluted front cave material, the overall mining grade has improved in line with expectations when measured against the six months to June 2010. As at Cullinan, Petra's development plan at Koffiefontein will eventually establish new production levels where the Company will have access to fresh, undiluted ore. Once this has been achieved, Petra expects the overall grade at Koffiefontein to improve to 8.7 cpht.

The plant capacity of 1.7 million tonnes per annum ("mtpa") is now being fully utilised, with an additional 338,594 tonnes of tailings from the Eskom dump yielding 7,110 carats at a grade of 2.1 cpht for the Period. These additional tonnages treated during the Period more than off-set the lower grades achieved and overall diamond production increased 11% in comparison to H1 FY 2010.

Kimberley Underground - South Africa

	Unit	6 months ended 31 December 2010	6 months ended 30 June 2010	6 months ended 31 December 2009
Sales
Revenue	US$M	4.9	n/a	n/a
Diamonds sold	Carats	17,271	n/a	n/a
Average price per carat	US$	285	n/a	n/a
Total Production (all ROM)
Tonnes treated	Tonnes	176,527	9,141	n/a
Diamonds produced	Carats	24,988	1,362	n/a
Grade	Cpht	14.2	14.9	n/a

Notes:  

·      Petra has a 74% interest in Kimberley Underground (BEE partners 26%)

·      The acquisition of Kimberley Underground completed in May 2010 and therefore there were no results prior 
to this date

At Kimberley Underground, the average price per carat of US$285 achieved for the Period was very encouraging and exceeded Petra's original expectations for the mine in the region of US$180 to US$200.

Commissioning difficulties with the new plant at Joint Shaft resulted in lower than expected diamond recoveries, but these issues were largely overcome during the Period and the Company is now looking forward to increased production in the second half of FY 2011. The commissioning problems were mainly related to the large percentage of fine material extracted from the matured caves. To assist in resolving this issue, some of the coarser material was scalped and stockpiled for later treatment, depressing the grades achieved during the Period.

At both Kimberley Underground and Koffiefontein, the Company is currently experimenting with higher bottom-cuts in the treatment plants which will result in increased revenues per carat, albeit at the expense of some smaller diamonds and thus a lower grade, so as to achieve optimal throughput and maximise revenue generation.

Fissure mines - South Africa

	Unit	6 months ended 31 December 2010	6 months ended 30 June 2010	6 months ended 31 December 2009
Sales
Revenue	US$M	7.9	7.7	5.8
Diamonds sold	Carats	41,522	38,658	33,971
Average price per carat	US$	192	198	172
ROM Production
Tonnes treated	Tonnes	91,480	79,901	88,939
Diamonds produced	Carats	41,545	31,183	39,767
Grade	Cpht	45.4	39.0	44.7
Tailings Production
Tonnes treated	Tonnes	29,886	28,374	2,266
Diamonds produced	Carats	2,166	1,234	2,048
Grade	Cpht	7.2	4.3	90.4
Total Production
Tonnes treated	Tonnes	121,366	108,275	91,205
Diamonds produced	Carats	43,710	32,417	41,815
Grade	Cpht	36.0	29.9	45.8

Note:

·      Petra has a 74% interest in Helam (BEE partners 26%), a 74% interest in Star (BEE partners 26%) and a 
74.5% interest in Sedibeng (BEE partners 25.5%)

At the fissure mines (Helam, Sedibeng and Star), the average value per carat was not greatly affected despite the strength of the diamond market due to the mix in production from the three mines, with a higher contribution from the lower value per carat Helam mine.

The development and mechanisation work at the fissure mines is on track and average total production increased by 5% to 43,710 carats.  The Company expects further improvements to be seen in the second half of FY 2011.

Costs - South Africa

In general, cost increases have been contained to levels commensurate with South African inflation. The strengthening of the South African Rand against the US Dollar will see an increase in operating costs in US Dollar terms.

Williamson - Tanzania

	Unit	6 months ended 31 December 2010	6 months ended 30 June 2010	6 months ended 31 December 2009
Sales
Revenue	US$M	2.0	7.5	6.9
Diamonds sold	Carats	7,722	43,018	48, 883
Average price per carat	US$	264	174	141
ROM Production
Tonnes treated	Tonnes	n/a	404,525	930,131
Diamonds produced	Carats	n/a	25,191	59,050
Grade	Cpht	n/a	6.2	6.3
Alluvial Production
Tonnes treated	Tonnes	254,648	211,404	212,261
Diamonds produced	Carats	10,847	7,522	9,308
Grade	Cpht	4.3	3.6	4.4
Total Production
Tonnes treated	Tonnes	254,648	615,929	1,142,392
Diamonds produced	Carats	10,847	32,713	68,358
Grade	Cpht	4.3	5.3	6.0

Note:

·      Petra has a 75% interest in Williamson (Government of the United Republic of Tanzania 25%)

As previously announced, the expansion plan to establish a 10 mtpa operation at Williamson has now commenced and therefore production from the main pit has stopped whilst the re-shaping operations are underway. Sales and production during the Period were therefore limited to contracted alluvial mining, where the 10,847 diamonds for the Period were produced. There is currently no processing facility at Williamson whilst the refurbishment work on the old main plant is undertaken. However this work is progressing well and the commissioning of the refurbished plant is expected to commence during the fourth quarter of FY 2011.

Corporate

US$83m Debt Facilities Finalised

In November 2010, Petra finalised agreements with IFC (a member of the World Bank Group) and RMB, a division of FirstRand Bank Limited, with regards to new debt facilities of approximately US$83 million.

·     These debt facilities provide Petra with a US$40 million loan from IFC and a US$43.5 million 
(ZAR300 million) loan from RMB, as well as the extension of the Company's existing US$14.5 million (ZAR100 million) FirstRand Bank Limited group overdraft facility.

·     Together with contributions from Petra's own treasury, the facilities will primarily finance the 
expansions of the Williamson mine in Tanzania and the Cullinan mine in South Africa, and will settle the outstanding, short-term loan due to Al Rajhi (see below).

Al Rajhi Loan

In November 2010, Petra settled the outstanding US$30.7 million loan plus interest to Al Rajhi Holdings W. L. L. (the loan was in relation to the original purchase of the Cullinan mine), thereby removing this short-term debt obligation from Petra's balance sheet.

Increase in effective interest in Koffiefontein from 70% to 74%

In December 2010, Petra increased its effective interest in the Koffiefontein mine from 70% to 74%. The additional 4% interest was acquired from the shareholders of Re-Teng Diamonds (Pty) Limited, Petra's black economic empowerment partners ("BEE partners") at Koffiefontein. The interests in Koffiefontein are now Petra 74%, BEE partners 26%.

Empowerment of the Helam mine

In December 2010 Petra introduced Sedibeng Mining (Pty) Limited as the BEE partner at the Helam mine in South Africa. All of Petra's South African mining operations are now empowered and fully compliant with the requirements of BEE legislation in South Africa.  

~ Ends ~

For further information, please contact:

Cathy Roberts	Telephone: [phone]
Petra Diamonds, London	[e-mail]

Bobby Morse / Katharine Sutton	Telephone: [phone]
Buchanan Communications	[e-mail] [e-mail]

Andrew Chubb / Bhavesh Patel	Telephone: [phone]
Canaccord Genuity Limited (NOMAD and Joint Broker)	[e-mail] [e-mail]

Joshua Critchley / Martin Eales	Telephone: [phone]
RBC Capital Markets (Joint Broker)	[e-mail] [e-mail]

Notes to Editors:

About Petra Diamonds

Petra Diamonds is a leading independent diamond mining group and an increasingly important supplier of rough diamonds to the international market. The Company offers a unique growth profile within the diamond sector, with a core objective to double annual production to around 2.5 million carats by FY 2014 and further increase output to over 3 million carats by FY 2019. Beyond this target, the Group's major resource base of 261 million carats provides scope for additional organic growth going forward.

Petra has a well-diversified portfolio, with interests in seven producing mines: six in South Africa (Cullinan, Koffiefontein, Kimberley Underground, Helam, Sedibeng and Star) and one in Tanzania (Williamson).  The Petra team has managed producing diamond mines for the last 20 years and has developed an enviable track record in terms of delivering superior results from their asset base.

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).

 

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