Petra Diamonds expects tough operating market conditions

CULLINAN MINE, South Africa – London-listed Petra Diamonds said it expected a difficult operating environment going into 2009 and that it saw conditions improving by the end of 2010.

‘We are readying ourselves for extremely tough conditions’ Chief Executive Johan Dippenaar said during a media visit yesterday to the company’s Cullinan diamond mine in South Africa.
‘The most optimistic is to expect an improvement towards the end of (2009), but we are preparing ourselves for an improvement towards the end of next year.’ Petra Diamonds bought the Cullinan mine from De Beers, which is 45 per cent owned by Anglo American. The mine is renowned for producing the Cullinan, the largest ever gem diamond, and is the world’s main source of pricey blue diamonds. Petra Diamonds took over the mine in July 2008. The Africa-focused and AIM-listed miner – which Dippenaar said was considering listing on the main board of the London Stock Exchange within a year – repeated that output at the Cullinan mine would be 950 000 carats for its 2009 fiscal year. The mine produced 450 129 carats in the first six months to December. Petra Diamonds said it had not sold any diamonds this year, and even though it saw prices falling sharply, it does not yet have plans to cut output. It was putting in place improvements to the mine, which would further improve production. Dippenaar said he expected some support to diamond prices from output cuts announced by bigger producers, while the rand weakness would also buoy the company’s revenue. De Beers, the world’s top diamond producer, said last Friday it would make a significant cut in production across its mining portfolio as well as capital spending and jobs this year as the global recession hits demand for luxury goods. Sales of diamond jewellery during the key holiday season fell in line with expectations, the company said. Petra Diamonds says on its website that it is on track to increase its annual production from 200 000 carats in the year to June 2008 to over one million carats in the year to June 2009. Technical director Jim Davidson said the company would issue revised production targets, taking into account current market conditions, within two weeks. Petra Diamonds has previously said it was sharply cutting back on exploration programmes, including withdrawing from the key Alto Cuilo project in Angola, due to the global downturn. Petra Diamonds boosted gross revenue from rough diamond sales by 52 per cent to US$48,1 million in its fiscal first half due to new production starting in July from the Cullinan mine, offsetting weaker diamond prices. In South Africa, Petra has five producing mines – Cullinan, Koffiefontein, Helam, Sedibeng and Star. The group has also acquired two further assets from De Beers, the Kimberley Underground mines in South Africa. -Nampa-Reuters