Petra Diamonds Increases H1 Production, Weak Rough Market Slows Sales

Mining and Exploration
27/01/2020 12:25

London-based mid-tier miner Petra Diamonds booked a 3% increase in production from its mines in South Africa and Tanzania in H1 2020 (six months ended 31 December 2019) recovering 2.07 million carats. This keeps the miner on track to meet or exceed its FY 2020 production guidance of approximately 3.8 Mcts despite several disruptions. Revenue for H1 FY 2020, however, fell 6% in comparison to H1 FY 2019 to $193.9 million due to lower diamond prices mainly relating to the weaker diamond market (-10%) and compounded by a poorer product mix at the Finsch and Williamson mines. The downturn in sales was offset by the sale of an exceptional, 20.08-carat blue diamond recovered at the Cullinan Mine in September, which fetched $14.9 million, or approximately $741,000 per carat.

As other mining companies have already noted, Petra says there was "growing stability in pricing as the calendar year closed," adding that as the calendar turned to 2020 (post-reporting period), "demand has continued to improve as the midstream looks to replenish inventory. Early indications are that rough pricing has improved modestly to date in Q3 FY 2020." They note that "supply discipline by the major diamond producers in the second half of calendar 2019 has played an important role in moving towards more balance between supply and demand in the midstream, and will remain a key factor in terms of the health of the market in calendar 2020."

The largest decline in prices achieved was seen at the Finsch mine, as the value realized on stones from their second largest mine fell 25%, mainly due to a poorer product mix. The miner said attributed this "to the depletion of the higher value overburden dumps, as well as fewer and poorer quality large diamonds recovered compared to historical averages." Looking to remedy the situation, Petra has upgraded the coarse diamond X-ray machines in the plant to increase the probability of the recovery of high value large stones. "The X-ray machines in the bulk sample plant were replaced with newer technology X-ray machines and are now being used to treat recovery tailings from the main plant to provide additional assurance around the efficiency of the recovery circuit."

Production at the Cullinan mine drove Petra's modest output gains, increasing  7% to 889,787 carats due to an increase in ROM production (+9%). The higher ROM carat production was largely driven by an increased volume treated of 2,295,197 tonnes (H1 FY 2019: 1,996,624 tonnes), with the ROM grade of 37.3 cpht marginally lower than guidance of 38 - 42 cpht. Petra said there were "two notable pit scaling events during Q2" but their impact was mitigated. Production at the smaller Koffiefontein mine continued to improve, with ROM production up 76% to 44,545 carats (H1 FY 2019: 25,275 carats). Finsch's overall carat production, on the other hand, decreased 4% to 913,557 carats (H1 FY 2019: 947,424 carats). ROM production at the Williamson mine in Tanzania also increased 3% to 214,888 carats (H1 FY 2019: 208,064 carats). A pit slump of approximately 1.3 million tonnes occurred at Williamson on 21 January, forcing Petra to temporarily halt production, though they do not anticipate this to have a material impact on FY 2020 production guidance.

Richard Duffy, CEO of Petra Diamonds, commented: "I am very pleased with the progress made in implementing Project 2022 across our operations and at corporate level. The buy in to this project from all of our Petra employees and contractors has supported the strong operational performance across all sites, resulting in us achieving our highest level of ROM tonnes mined and carats recovered over the last six months, and has positioned us to meet or exceed full year guidance." Petra's Project 2022 aims to deliver $150-200 million net free cash flow over next three years to address net debt. To achieve this, the miner will prioritise ‘value’ over ‘volume’ production, achieve their annual production targets and will focus on optimization measures to maximise throughput, maintain disciplined on-mine cost control and an efficient overhead structure. They will also focus on capital efficiency and continue optimisation of their portfolio and operating systems, using new technology where appropriate to drive improvements.

Image: Cullinan mine, courtesty of Petra Diamonds