Petra Diamonds’ Stocks Glitter amidst Market Weakness

on Sep 27, 2012
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Despite the recent weakness of the diamond market, Petra Diamonds (FRA:FPO, PINK:PDMDF) was on glittering form, the Telegraph reported on 24 September 2012. Although the rough diamonds supplier reported a loss after tax, its shares rose, marking the biggest gain among the members of the FTSE 350 Mining index.

The Telegraph reports that Petra Diamonds climbed 7.6 percent to 118p, after reporting a 44p rise in full-year revenues and forecasting a 30 percent increase in production next year. These positive developments outweighed the news that the company posted a loss after tax of $2.1 million (£1.3 million), with profits hurt by foreign exchange movements. In addition, analysts pointed out that the diamond supplier managed to meet its latest guideline despite the weakness observed in diamond markets. As noted by the mining news website Mineweb, Petra’s profit from mining activity rose 35 percent to $103.3 million (£63.8 million) in the year ended June 30, whereas production nearly doubled.

As recently reported by Bloomberg, unpolished diamond prices have decreased by as much as 19 percent in 2012 with Asian buying slowing and the Eurozone crisis eroding gem consumption. Prices had risen by more than 20 percent in each of the past three years, as miners struggled to keep pace with demand.
Petra Diamonds, however, seems optimistic about the rough diamonds market. “The market is not that bad,” notes the company CEO Johan Dippenaar. “There are definitely some green shoots out there. We see good attendance at our tenders.” Petra Diamonds, which sells rough diamonds through auctions in Johannesburg and Antwerp, had its first tender for 2013 earlier in September, and stones from the Koffiefontein and Williamson mines sold better than expected, whereas prices for diamonds from its Cullinan and Finsch operations met the company guidance.

!m[](/uploads/story/470/thumbs/pic1_inline.png)“If people realise Europe is not going to be a real doomsday scenario, confidence will return slowly but surely,” points out Mr Dippenaar, as quoted by Bloomberg. The company noted in a press release that the medium to long-term outlook remained positive on account of strong supply/demand fundamentals. The Telegraph, however, quotes JP Morgan (NYSE:JPM) as saying that it is global growth and potential stimulus measures in China in particular that would be the key factor for miners.

Despite operating seven mines in South Africa where the recent labour unrest has impeded platinum and gold mining activity, Petra Diamonds does not see the tension as a threat to its own operations, since it has a smaller workforce as well as a stable union membership. “It’s always a concern when you see people revert to methods outside the laid-down legal procedures,” notes Mr Dippenaar, as quoted by Bloomberg. “I don’t want to say ‘Oh no, it can’t happen with us,’ because I don’t want to paint a target on our backs.”
As reported by Mineweb, Petra Diamonds expects to produce 2.85 million carats in fiscal 2013, or a 30 percent increase from its 2.2 million carats produced in its last financial year. In addition, the company plans to ramp up output to 5 million carats by fiscal 2019.

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