26th Jan 2015 10:06
LONDON (Alliance News) - Petra Diamonds PLC Monday said two exceptional diamond sales and weakness in the South African rand offset a softer rough diamond market in the first half, but its shares dropped after it warned downgraded grades and pricing guidance for the second half may mean it misses market expectations for the year.
FTSE 250-listed Petra said its production in the first half of its financial year to the end of December was down 2% year-on-year to 1.60 million carats from 1.63 million last year. It said it has upgraded its full-year production guidance, however, to 3.3 million carats from 3.2 million previously.
Production rose at its Finsch, Koffiefontein and Kimberley Underground sites in South Africa and at its Williamson kimberlite project in Tanzania, but this was offset by weaker production at Cullinan, also in South Africa, and lower tailings production at Finsch and Koffiefontein.
But the group said the softness in the rough diamond market meant actual prices for certain mines in the first half were lower than Petra's guidance. It has now revised downward its guidance for Finsch, Cullinan and Koffiefontein, though it did hike its guidance for Williamson. The guidance downgrades may result in the group's full-year results missing market consensus, Petra said.
Shares in the company were down 4.7% to 172.088 on Monday morning, one of the worst performers in the FTSE 250.
It said the rough diamond market showed traditional seasonal weakness in the first quarter of its 2015 financial year, but said further pressure on prices has been driven by some short-term indigestion in the pipeline resulting from liquidity issues, polished inventory levels and the impact of the strong US dollar on diamond prices denominated in that currency.
These softer conditions are expected to continue in the near-term, Petra said, although solid Christmas sales and the Chinese New Year celebrations in February should ease the pipeline issues in months to come and result in firmer pricing towards the end of the second half.
Revenue in the first half was up 16% to USD214.8 million, from USD184.6 million a year earlier, boosted by USD38.7 million in revenue made from the sale of two exceptional diamonds. The group said the sale of the two diamonds boosted its revenue amid softer rough diamond market conditions, and said it was getting a favourable boost from the weaker South African rand on its operating costs in US dollar terms.
The weaker rand and exceptional sales also helped to offset weaker selling prices in the half. The company said like-for-like diamond prices in the first half were down by around 8% to 9%, but said its average sale value was USD154 per carat in the first half, against USD130 per carat in the first half of last year.
Petra Diamonds said its costs are under control and in line with guidance and said its capital expenditure of USD125.2 million in the half, significantly higher than the USD85.3 million it had spent at the same time in 2013, was in line with the roll out of its fully-funded expansion plans. It maintained its full-year spending guidance.
The group did say its production has not been impacted by the power issues which have hit the South African market. Under the system in the country, state power company Eskom consults with the mining industry prior to implementing load shedding, giving advanced notice to customers to react to the move. Petra responds to this by temporarily halting its tailings production at the South African mines which are effected in order to minimise disruption to underground production.
Petra also said it plans to pay a maiden full-year dividend for the year to June 2015 of 2 pence per share.
"These are solid results, with production on track to exceed our previous full-year target of 3.2 million carats and revenue boosted by the exceptional diamond sales, despite softer market conditions," said Petra Chief Executive Officer Johan Dippenaar.
By Sam Unsted; [email protected]; @SamUAtAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
Petra Diamonds