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Upbeat Petra Diamonds moots dividend fast-forwarding

Petra CEO Johan Dippenaar

Petra CEO Johan Dippenaar

Photo by Duane Daws

18th September 2014

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) - London-listed Petra Diamonds on Thursday outlined major upcoming elevations in the economics of its mining operations, which upped production in the 12 months to June 30 to enable the buoyant diamond mining company to post a 47% increase in earnings and consider bringing forward its maiden dividend declaration.

The operator of six former De Beers diamond mines gave guidance of higher expected diamond prices from all five of its South African diamond mines in its current 2015 financial year (FY).

“We look forward to entering a period of significant cash generation,” Petra CEO Johan Dippenaar told analysts and journalists, as the company mulled bringing forward its 2016 maiden-dividend target, in anticipation of expansions under way yielding higher grade, better per-carat value and above-50% margins of profit.

Investec Securities mining analysts, who described the company’s $17.8-million working capital reduction as “a significant accomplishment”, hailed as “important positives” the strong current market outlook for diamonds and the possibility that Petra will fast-forward its dividend payout.

The company’s adjusted core earnings rose to $187.7-million – up from $127.6-million last year – on 20%-higher revenue of $471.8-million.

Although the projected 3.2-million carat production is only marginally up on FY 2014’s 3.1-million carats, plans to produce five-million carats by FY 2019 are on track with the help of shaft deepening and underground development at the Cullinan diamond mine, outside Pretoria, and decline developments at the Finsch diamond mine, in the Northern Cape.

Petra acquired all of its mines, including the Williamson mine in Tanzania, from diamond major De Beers, and displayed ongoing acquisitive sentiment when asked by an analyst whether it would consider buying the Voorspoed diamond mine in the Free State, which De Beers, according to market speculation, would like to sell.

While diamond grades are being dragged down in the heavily waste-diluted block caves in Petra’s underground South African mines, its expansion programmes are opening up new areas of undiluted ore, where grades, carat production and profit margins are poised to lift.

The percentage of production from tailings is also set to plummet from 31% to 5% by FY 2019.

Access to undiluted tonnage and the prospect of better ore handling is poised to reduce unit costs.

To open up new block caves underground in the additional Cullinan and Finsch residual resource areas will be at openpit cost levels of R100/t.

Ongoing cash flow from exceptional diamonds – defined as diamonds that sell for more than $5-million apiece – is expected in the light of the sale of a 126.4 ct white diamond for $8.5-million in December and the sale of a 29.6 ct blue diamond – unveiled as the 12 ct 'fancy vivid' blue, 'internally flawless' Blue Moon on display in the Natural History Museum in Los Angeles – for $25.6-million in February.

Another remarkable 122 ct Cullinan blue diamond was sold this month for $27.6-million into beneficiation partnership, that cost the beneficiation partner $23.5-million for its 85% stake.

The sale of a white 232.1 ct Cullinan diamond is pending, against the background of exceptional Cullinan diamonds contributing an average of $18-million a year since 2008.

With electricity accounting for 15% of mine cash costs, Dippenaar expressed concern about electricity prices in South Africa rising to 12%.

Labour accounts for 42% of cash costs at the Finsch, Cullinan and Koffiefontein kimberlite mines and Petra expressed satisfaction at concluding a 10%-a-year, three-year wage agreement with the National Union of Mineworkers to 2017.

Petra's expansion plan at Koffiefontein will increase production from 50 375 ct/y to 100 000 ct/y by 2017 in the underground section only.

Petra's current mine plan has a life of 11 years, but the residual resources at the mine indicate that the actual life-of-mine could be more than 20 years.

As at Finsch, a sublevel cave will be installed ahead of a new block cave.

Petra's mine plan at the Kimberley underground mine will take steady-state production to 170 000 ct/y by 2016.

Its expansion plan at Williamson is expected to deliver 300 000 ct/y.

The company’s exploration programme is concentrated in Botswana, where it is evaluating the KX36 kimberlite.

Edited by Creamer Media Reporter

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