JOHANNESBURG – Petra Diamonds’ flagship Cullinan mine, 40km east of Pretoria, has lost its sparkle, yielding low rough diamond prices in the six months to December.
The company said rough diamonds recorded at Cullinan had plummeted to $96 (R1 314) a carat in the period under review from $140 a carat reported in the previous year.
Petra, which runs four mines in South Africa and one in Tanzania, said the Cullinan mine fell 13 percent on the London Stock Exchange.
Despite the lower rough diamond prices, Cullinan led the way in terms of production with diamond production increasing 30 percent to 785 444 carats compared with 602 594 carats in the preceding period.
Petra said net debt had climbed to $557.2 million from $520m in the previous period last year. The company said it had suffered a $25m revenue shortfall due to the volatility in Cullinan’s product mix. It also grappled with a $10m shortfall in revenue due to ongoing volatility in Cullinan’s product mix.
Unrest sparked by poor municipal service delivery in September led to disruptions at the Koffiefontein and cost the company $7m.
Canadian bank RBC downgraded Petra Diamonds to sector perform from outperform after a trading update saw a drop in diamond prices at the Cullinan mine. In a note, analysts at the bank said they remained “cautiously optimistic” of recovery at Cullinan, and the $94 a carat diamond price from the mine in the period was “well below” their own estimates of $132 a carat.
“We see concerns that despite ramping volumes that prices are not following, indicating the “base” level of pricing may be structurally lower than previously anticipated.” Revenue increased 8 percent driven by increased sales volumes of 1.7 million carats.
Johan Dippenaar, Petra’s chief executive, said the group had delivered solid production underpinned by a continued improvement in safety.
“We're seeing production reaching consistent levels while our focus remains on the delivery of operational and capex efficiencies to generate positive free cash flow and subsequent debt reduction.”