[miningmx.com] — PETRA Diamonds said on Monday it expected the diamond market to face some choppy waters for the foreseeable future, but that industry fundamentals would continue to support record prices over the longer term.
Delivering results for the year to end-June on Monday, Petra CEO Johan Dippenaar said it was “possible’ that the world has already seen peak diamond production – the high of 176 million carats in 2005 and 2006 – and that new sources wouldn’t be able to make up for the decrease in output from the world’s ageing major mines. Global diamond production totalled 133 million carats in 2010.
“Though the world’s economic outlook is uncertain in the short term, which may cause some volatility in rough diamond prices, the fundamentals of our industry remained intact,’ Dippenaar said in his CEO review. “While supply is forecast to remain flat or start to decline, demand for diamonds continues to rise in both established and new markets as wealth and consumer spending increase.’
For 2010, De Beers calculated that the global diamond jewellery market grew by over 8%, while the US – the largest single consumer market for diamonds with around 38% of sales – grew by 7%.
Demand in emerging markets grew at substantially higher rates. China and India recorded growth of over 25% and 31% respectively.
“These markets are predicted to continue their rapid expansion, accounting for more than 50% of incremental growth over the next five years,’ Dippenaar said. “The Far East is expected to eventually account for around 40% of global demand by 2015.’
Dippenaar said although company’s most recent tender results, in August, have come off their highs achieved in June this year, prices would continue to remain strong. Peer Gem Diamonds, at their fourth sale announced recently, also saw a fall of 15% to 20% in prices.
“Positive results from industry bellwethers Tiffany’s and Signet demonstrate that consumer demand remains robust,’ Dippenaar said. “In China and India, many new diamond jewellery stores need inventory and this is driving a large portion of the wholesale demand.
“Investment demand for diamonds is also rising, given their appeal as a hard asset investment class, and several new physical diamond investment funds launched during the period.’
STEP CHANGE
Petra’s production came dome 4% in 2011 to 1,117,795 carats, following the planned halt of main pit production at Williamson mine in Tanzania, but said the completed acquisition of Finsch, bought from De Beers for R1.4bn, would accelerate a “step change’ in production towards its target of over 4 million carats by 2014 and more than 5 million by 2019. For 2012, Finsch would add around another 1 million carats to output.
Dippenaar also said Petra would complete a move to the LSE’s main board by 2012.
As far as for other basic figures, revenue was up 34.7% to $220.6m, operating cash flow remained flat at $50.6m ($48.8m in 2010), while profit from mining activities were up 13.6% to $76.4m.
A major cause of concern for investors would be a 25% jump in gross mining and processing costs, which Dippenaar attributed to similar increases in electricity prices, as well as above-inflation wage increases.
“There’s no magic bullet to bring costs down,’ Dippenaar said. “We’re focusing on a number of small initiatives to save electricity and improve productivity.’
Commenting on Petra’s numbers, Roger Bade of Libertas Capital said the results were good, but compared poorly with 2010’s “sparkling’ figures.
“Petra is in transition once more with Finsch being bedded down and Williamson redeveloped,’ said Bade. “They still however need to transform their position into cash flow and dividends; a hiccup in diamond prices just now would be unwelcome.’
