Monday, February 21, 2011

Petra confident of diamond market's sparkle

Petra Diamonds (PDL) is confident the strengthening diamond market will continue to sparkle, as it eyes up a move to the Main Market.

In the wake of the company's interim results, chief executive Johan Dippenaar told Interactive Investor that he was "very optimistic" that the market will remain firm, amid growing demand and reduced supply.

He noted that following the downturn of 2008, the retail off-take has been driving diamond prices higher, with retailers once again growing "adventurous" after what was a cautious period for the industry.

He cited growing demand from the likes of China and India, among other emerging markets, as a key driver behind the rising interest in the industry. China recorded exceptional double-digit growth of 25% in 2010, while India racked up a 31% jump.

Meanwhile, supply is set to become more constrained as producers do all they can to maintain current levels of supply, he added.

"Going forward, industry growth is expected to be line with global economic growth, though we consider that there is potential for the diamond market to outperform if the growth in China and India maintains its rapid pace."

The company's bullish outlook came despite a downturn in both production and profit figures for the first half of the 2011 financial year.

The African-focused diamond miner posted group EBITDA of $20.2 million for the six months to 31 December, compared to $38.1 million a year earlier as the company had previously booked a $31 million credit fair value adjustment for Cullinan.

The lower EBITDA led to a reduction in post-tax profits to $24.5 million for the half year.

However, Dippenaar shrugged off the dip in figures, stating that the market had been expecting slightly softer numbers and maintaining that the story looks strong going forward.

The addition of its recently acquired Finsch mine in South Africa is set to significantly ramp up the company's production and revenue going forward, he said. The company hailed the deal a "landmark development," given that it will increase the company's gross resource base to over 300 million carats and adds an eighth producing diamond mine to the group's portfolio.

While Petra had previously targeted group production of three million carats by financial year 2019, it is now set to achieve this target by FY 2012.

"We are on track to achieve our target of four million carats by FY2014-16, thereafter ramping up to five million carats by 2019," Dippenaar told Interactive Investor.

The addition of Finsch has also brought the group one step closer to achieving its goal to join the bright lights of the London Stock Exchange Main Market.

While Dippenaar declined to give dates, he did reiterate that it remained a primary objective of the company.

Fairfax mining analyst John Meyer said: "Petra remains our favoured mid/large tier diamond miner and with the Finsch mine set to boost group output substantially the company is rapidly evolving. We look forward to future results that should strengthen in response to higher diamond prices as well as improved operational performance optimising potential revenues from the expanding asset base."

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