Petra Diamonds set to focus on quality over volume

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Petra’s year-end results show current market for supply and demand.

Petra Diamonds Limited has announced its unaudited sales and production update for the year ended June 30, with results that give an indication of the current situation of diamond production and demand.

The company will announce its full financial results for the period on September 20, but has released details which show that it expects to terminate production at several mines with a focus on better quality stones instead of high volume.

With the closure of the Finsch acquisition expected in the coming weeks, the company remains on track to more than double production in financial year 2012, and is targeting 4 million carats of production in 2014 and more that 5 million carats by 2019.

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The update shows that Petra’s gross mine revenue is up 24% to US$221 million. Adjusting for the exceptional sale of the US$35 million Cullinan Heritage diamond in 2010, revenue would have been up by 55%;

The agreement reached with De Beers in January 2011 to acquire the Finsch mine in South Africa will more than double Petra’s annual carat production and increase the group resource base to over 300 million carats valued at circa US$56.5 billion.

Petra’s outlook remains postitive for the diamond market, backed up by the significant strengthening of diamond prices in recent months. Its gross mine revenue is up mainly due to the steady increase in rough diamond prices from October 2010, shown by revenue of $90.0m in the first half of the 2011 financial year.

However, during the 2011 financial year, Petra’s production has dropped by 4% and remained flat during the 2011 financial period but the company has put a strategic focus on value production rather than volume production. Whether this is due to changes in demand or difficulties faced by Petra is mixed, as the company plans to terminate mining at the main pit production at Williamson while an expansion plan is underway, and reduce high grade Optical Sort Plant (“OSP”) material at Cullinan.

It has noted lower than expected volumes from the Kimberley Underground mine due to initial commissioning difficulties at the Joint Shaft plant, which though now overcome, has also been affected by unseasonably heavy rainfall which has affected Petra and many other South African mining companies.

Johan Dippenaar, CEO of Petra said: “Petra has once again recorded significant growth in revenue, reflecting the health of the rough diamond market. Whilst production was relatively flat for the Period, we will see a further step-change in output for FY 2012 as the Finsch acquisition is expected to complete shortly. Given the outlook for the diamond industry, where demand is forecast by most industry commentators and major producers to outpace supply, Petra’s exceptional growth profile will ensure the Group is in a strong position to capitalise on these very robust fundamentals.”

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