Trading Update

RNS Number : 2221V

Petra Diamonds Ld

07 July 2009

 

7 July 2009

AIM: PDL

Petra Diamonds Limited

('Petra' or 'the Company' or 'the Group')

Trading Update

Five-fold production increase to over 1 million carats, with visibility of further current year production growth

Petra Diamonds Limited, the international diamond mining group, announces the following sales and production trading update (unaudited) for the year ended 30 June 2009 ('the Period') ahead of the publication of its results during September 2009.

The Company has achieved its stated objective of increasing annual production to over 1 million carats (production for the Period 1,108,815 carats), recording a five-fold increase over the previous financial year (200,287 carats). 

Highlights

Sales

• Mine gross revenue for the Period: US$94.4 million, a 22.1% increase on the year to 30 June 2008 (US$77.3 million)

• Group revenue* for the Period: US$69.1 million (2008: US$76.9 million) 

• Notable diamonds sold during the Period: 

  • Two exceptional blue diamonds from Cullinan: a 39.19 carat blue diamond sold as a rough stone in October 2008 achieved US$8.8 million (US$225,934 per carat) and a 7.03 carat blue diamond sold as a polished stone (cut from a 26.58 carat rough) achieved US$9.4 million (US$1,349,752 per carat) on auction in May 2009, establishing a new auction record price per carat and the highest auction price for a fancy vivid blue diamond 

  • Two notable Type II white 'D colour' diamonds from Cullinan: a 26.54 carat rough sold for US$1,625,000 (US$61,320 per carat) in August 2008 and a 36.17 carat rough sold for US$1 million (US$27,647 per carat) in November 2008

  • A 126.69 carat white diamond from Sedibeng sold in September 2008 for US$5.25 million (US$41,448 per carat)

  • A 47.15 carat Type II white diamond from Williamson sold in June 2009 for US$637,000, illustrating the potential for high value production from this mine

• 1,011,834 carats (gross) sold for the Period, a 339.6% increase on the year to 30 June 2008 (230,172 carats) 

* As adjusted to how Petra accounts for its interest in Cullinan, under the gross method of proportional consolidation, recognising 50% of total revenue which includes a 13% minority interest

Production 

• Production of 1,108,815 carats, a 453.6% increase on the year to 30 June 2008 (200,287 carats)

• Net increase in production and sales is largely due to the Cullinan mine coming on stream in July 2008 as well as Williamson in November 2008, offset by the falls in rough diamond prices across all operations in line with market conditions, reduced production at Koffiefontein (now rectified) and Star/Helam (decision to reduce production at Star and Helam announced February 2009, rather than putting the mines onto care and maintenance)

• All operating costs efficiently managed in line with Petra's proven track record as a low cost underground diamond producer. The Company has successfully reduced unit costs at the Cullinan mine. Costs on a unit basis have been under pressure at Koffiefontein and the fissures due to reduced tonnes mined. Further detail will follow within the results review in September  

• Further production growth is expected for the next financial year as the acquisition of a 75% interest in the Williamson mine in Tanzania was completed effective November 2008 and Petra expects the acquisition of a further important asset, the Kimberley Underground mines in South Africa, to complete in the near future

Johan Dippenaar, Chief Executive Officer said, 'This has been a year in which Petra has established itself as a significant diamond producer.  We have grown our production substantially, continued to find world class stones, effectively managed our cost base and expanded our geographic footprint.

'Trading conditions remain challenging and our cash flow remains tight, with the recent strengthening of the rand absorbing much of the benefit of the increase in rough prices. Management will remain vigilant to guide the Company through these difficult times.' 

Diamond market review

As has been widely reported, the rough diamond market was severely affected by the world financial crisis, with average rough prices falling by up to 65% between September 2008 and the lows reached in early 2009. Petra has since experienced a general price recovery in the region of 25%, in line with the improvements publicly noted by commentators on the diamond market. Whilst these remain challenging trading conditions, there are positive signs that demand for rough, and more specifically liquidity, is improving.

Petra's rough diamond tenders have remained well attended and all parcels offered for sale have been sold, despite the difficult circumstances over the last nine months.  The Company has recently opened an office in Antwerp, the world diamond hub, and held two tenders (Williamson production) there in May and June 2009, with good prices being achieved. Petra will continue to hold tenders in both Johannesburg and Antwerp going forward.

Since April 2009, we have seen a degree of liquidity returning to the markets and the mood has changed markedly. Inter-dealer trading that had become almost non-existent has started to pick up and a degree of market confidence has returned. The reduction in the supply of rough, in light of production cut backs from the major producers (notably De Beers and external sales by Alrosa), combined with the de-stocking of the diamond pipeline over the last few months, has assisted to increase demand in the rough diamond market.

Cautious optimism is at the forefront of Petra's thinking and, while we remain aware that a softening in prices is possible, we expect prices to continue to slowly and gradually strengthen.

Operational review

Cullinan

Ore delivery continues to run ahead of original expectations, with production of 898,043 carats for the period 16 July 2008 to 30 June 2009. However revenues suffered due to the fall in rough diamond prices in September 2008, shortly after Petra commenced operations at the mine. The 'special' stones recovered at Cullinan, most notably the two blue diamonds noted in the highlights above, meant that the average value of production was substantially enhanced and the mine recorded an average price for the Period of US$66 per carat.   Petra actively managed the Group's exposure to the sale of the second blue by retaining an involvement on the process of taking the diamond from rough, through cutting and polishing to auction and was rewarded with another notable achievement in Cullinan's history with the world record price achieved.

In the plant, 13 new Flow Sort diamond recovery machines have been installed and commissioned. The installation of the remaining 4 machines is nearing completion and will be commissioned in the near future. Work on the refurbishment of the large diamond recovery plant has progressed well and it is anticipated that this section should be commissioned by October 2009. 

Koffiefontein

The number of carats produced for the Period reduced to 52,089 (89,622 for the period to 30 June 2008). This decrease in production, as well as the average quality of diamonds produced, was due to delays in bringing into production new sections of the front cave on 48 level. This delay resulted from the greater than expected competency of the kimberlite, which delayed the early achievement of hydraulic fracturing radius whereby natural caving is induced. As a consequence, more waste diluted, finer and lower grade ore was extracted from the more mature sections of the cave. Caving has now been achieved and production is expected to revert to normal. 

In the plant, improvements put in place during the Period have increased available capacity to 1.5 million tonnes per annum, which will allow for future treatment of additional tailings and material from the satellite Ebenheazer pipe when the diamond market recovers sufficiently so as to justify this.

Fissures

The reduction in production, and therefore sales, is in line with Petra's decision to operate the Helam and Star mines at lower levels of production as previously announced. The average price per carat for the fissures has not been severely affected, due to the higher value of diamonds from Sedibeng production which makes up a larger proportion of the fissure production. 

Kimberly Underground

The Company expects the acquisition of the Kimberley Underground mines to complete in the near future. The agreement to acquire the mines from De Beers was originally signed in September 2007 and whilst completion of this acquisition has taken longer than anticipated, shareholders should not be concerned. It has been a complicated transaction to complete due to the specifics of the mining right conversions and related matters, but the care and maintenance period is allowing Petra to be fully prepared to ramp up production from the point of completion. 

Material hoisted during the care and maintenance period has been stockpiled and awaits treatment when the new plant is commissioned. A new treatment plant has been constructed by Petra at Joint Shaft - this plant is now complete and is expected to commence trial treatment during July.

Williamson

Although the acquisition of Petra's interest in the Williamson mine completed with effect from 10 November 2008, due to regulatory matters within Tanzania, Petra did not acquire operating management of the mine until late February 2009. Initial recoveries, grade and price achieved on tender have all been encouraging. As stated when Petra announced the acquisition of Williamson, management are currently focused on establishing new operating parameters for the mine based on the results being achieved, and further information in that regard will follow in the September results review. 

Financing

Shareholders are reminded that the US$20 million convertible bond (the 'Convertible') issued by Al Rajhi Holdings W.L.L. ('Al Rajhi') (and convertible at 130p per share) is due for repayment by the Company on 18 September 2009. The Company is in discussions with Al Rajhi (who own 9.01% of Petra's ordinary issued share capital) with regards to renegotiating the payment date and strike price of the Convertible. The Company will update shareholders as soon as an agreement is reached with Al Rajhi in this regard.

Combined Production and Sales summary - Cullinan, Koffiefontein, Fissure Mines, Williamson and Kono 

	Unit	Year ended  30 June 2009	Year ended  30 June 2008	Change
Production
Diamonds produced (gross, 100% Cullinan*)	Carats	1,108,815	200,287	453.6%
Sales
Revenue (gross, 100% Cullinan **)	US$M	94.4	77.3	22.1%
Diamonds sold (gross, 100% Cullinan)	Carats	1,011,834	230,172	339.6%
Average price per carat	US$	93	336	(72.21%)	***

* Net group production for IFRS reporting (adjusted to 50% Cullinan consolidated before minorities), 659,793 carats

** Net group revenue for IFRS reporting (adjusted to 50% Cullinan consolidated before minorities), US$69.1 million

*** Decrease in average value per carat due to Cullinan production coming on stream

All other operations are consolidated 100%, then adjusted for minority interests

Cullinan mine (100% numbers) - South Africa

	Unit	Year ended 30 June 2009 *		Year ended  30 June 2008	Change
Production
Diamonds produced	Carats	898,043		n/a	n/a
Grade	Cpht	41.5		n/a	n/a
Sales
Revenue	US$M	51.2		n/a	n/a
Diamonds sold	Carats	780,670		n/a	n/a
Average price per carat	US$	66	**	n/a	n/a

* The Petra Diamonds Cullinan Consortium completed the acquisition of the Cullinan mine on 16 July 2008 and therefore results are from that date

** Prior to the fall in rough diamond prices, first Cullinan post completion tender in September 2008 recorded US$100 per carat 

Petra currently has a 37% net interest in the Cullinan mine, with options to increase ownership up to 60%.  

Koffiefontein mine - South Africa

	Unit	Year ended  30 June 2009	Year ended  30 June 2008	Change
Production
Diamonds produced	Carats	52,089	89,622	(41.9%)
Grade	Cpht	6.6	9.1	(27.5%)
Sales
Revenue	US$M	18.3	51.0	(64.0%)
Diamonds sold	Carats	72,842	105,479	(30.9%)
Average price per carat	US$	252	484	(48.0%)

Petra has a 70% interest in the Koffiefontein mine, BEE partners 30%

Fissure Mines (Sedibeng, Star, Helam) - South Africa 

	Unit	Year ended  30 June 2009	Year ended  30 June 2008	Change
Production
Diamonds produced	Carats	71,274	110,665	(36.6%)
Grade	Cpht	37.7	41.9	(10.0%)
Sales
Revenue	US$M	15.3	26.3	(41.8%)
Diamonds sold	Carats	82,213	124,693	(34.1%)
Average price per carat	US$	186	211	(11.8%)

Petra has a 100% interest in the Helam and Star mines, and a 74.5% interest in the Sedibeng mine (BEE partners 25.5%)

Williamson Mine - Tanzania

	Unit	Year ended  30 June 2009	Year ended  30 June 2008	Change
Production
Diamonds produced	Carats	84,486	n/a	n/a
Grade	Cpht	5.2	n/a	n/a
Sales
Revenue	US$M	9.4	n/a	n/a
Diamonds sold	Carats	75,045	n/a	n/a
Average price per carat	US$	126	n/a	n/a

Petra has a 75% interest in the Williamson mine, Government of the Republic of Tanzania 25%

Petra completed the acquisition of its interest in the Williamson mine effective 10 November 2008 and therefore results are from that date

Kono (advanced exploration project in Sierra Leone)

	Unit	Year ended  30 June 2009	Year ended  30 June 2008	Change
Production
Diamonds produced	Carats	2,923	n/a	n/a
Grade	Cpht	40.0	n/a	n/a
Sales
Revenue	US$M	0.1	n/a	n/a
Diamonds sold	Carats	1,064	n/a	n/a
Average price per carat	US$	128	n/a	n/a

~ Ends ~

For further information, please contact:

David Abery	Telephone: [phone]
Petra Diamonds, London	[e-mail]
Julian Walker / Anna Keeble / Simon Hockridge	Telephone: [phone]
Hogarth Partnership, London	[e-mail]
Charmane Russell / Nicola Brower	Telephone: [phone]
Russell and Associates, Johannesburg	[e-mail] or [e-mail]

Adrian Hadden	Telephone: [phone]
Collins Stewart, London

Notes to Editors:

About Petra Diamonds

Petra Diamonds is a rapidly growing diamond mining group, focused on the African continent. A number of recent acquisitions have established Petra Diamonds as one of the world's largest independent diamond groups by resources, with a total resource base of 265 million carats worth US$27.3 billion (as at September 2008 Resource Statement). The Company's objective is to continue to develop its stature as a leading diamond producer in all of the countries in which it operates.

In South Africa, Petra Diamonds has interests in five producing mines - Cullinan, Koffiefontein, Helam, Sedibeng and Star - and has also reached agreement to acquire, from De Beers, the Kimberley Underground mines. In Tanzania, Petra has a 75% interest in the Williamson mine. Petra Diamonds has seen its production rise fivefold from 200,000 carats in the year to June 2008 to over 1 million carats in the year to June 2009. 

Petra Diamonds will only commit to working in countries which are members of the Kimberley Process and shareholders can remain assured that the Company's diamonds will only ever be 100% conflict free. Petra Diamonds is listed in London under the share code PDL. 

www.petradiamonds.com 

 

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