RAPAPORT... Petra Diamonds Limited reported that its production of rough diamonds declined 2 percent year on year to 1.601 million carats during the first half that ended on December 31, 2014. The amount of diamonds that Petra sold fell 1 percent to 1.402 million carats during the first half, according to a trading update the company filed with the London Stock Exchange. Revenue rose 16 percent to $214.8 million, boosted by $38.7 million in proceeds from two sales of large and exceptional diamonds.
Management noted that the rough diamond market was softer than usual during the six month period. However, the mining company’s two exceptional diamond sales and lower dollar-denominated costs due to a weaker South African rand helped mitigate the impact on the company’s bottom line.
The average price of Petra’s sales during the period rose 18 percent to $154 per carat. However, the company estimated that overall prices for its rough diamonds fell between 8 percent and 9 percent during the six-month period.
Excluding its exceptional diamond sales, the average price per carat that Petra received for its diamonds was lower at all its South African mines. For example, the average price achieved at its high-volume Finsch mine was $85 per carat, which was 21 percent below the company’s guidance for all of fiscal 2015. The average price received for non-exceptional diamonds at the Cullinan mine was 18 percent below the yearly forecast at $124 per carat.
Petra subsequently lowered its guidance for prices it expects to achieve between January and June 2015 at the Finsch, Cullinan and Koffiefontein mines.
"The rough diamond market exhibited its customary seasonal softness in the first quarter of fiscal 2015, but further pressure on prices is currently evident due to some short-term indigestion in the pipeline caused by issues relating to liquidity, polished inventory levels and the impact of the strong U.S. dollar on U.S.-dollar-denominated diamond prices," said Johan Dippenaar, Petra's CEO.
He added that while these softer market conditions are expected to continue in the near term, solid demand from Christmas sales and the ongoing retail festive period ahead of the Chinese New Year, should precipitate steady activity in the pipeline in the months to come, resulting in firmer pricing toward the end of the second half of fiscal 2015.
Petra raised its full-year production guidance by 3 percent to 3.3 million carats for its fiscal 2015 and expects further growth next year.
“Fiscal 2015 is a transitionary period as it marks the last financial year in which the company will be heavily reliant on production from the mature mining areas at the Finsch and Cullinan mines,” Dippenaar said. “From fiscal 2016 onward, we will start seeing significant and increasing input from undiluted ore, which is both higher grade and higher margin.”
Dippenaar added that while prices in the rough diamond market appeared to be under short-term pressure, retail demand for diamonds remains solid and industry fundamentals of tight supply and growing demand remained favorable to miners in the long term.
Shares in Petra Diamonds fell 5 percent to 171.5 pence in Monday morning trading on the London Stock Exchange following the announcement.
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