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Petra Diamonds on track to meet full year guidance after first quarter output rises 21%

Higher production and improved product mix offset a 5% decline in diamond prices

Petra Diamonds says the first quarter "shows solid operational delivery"

Petra Diamonds Ltd (LON:PDL) said it was on track to meet full-year expectations after first quarter production rose 21% in the first quarter.

Production in the three months to the end of September amounted to 1.07mln carats, up from 883,803 the same period a year ago, as an increase in run of mine (ROM) output across operations offset planned reductions in tailing recoveries at Finsch mine in South Africa.

Revenue for the period rose 22% to US$80.2mln from 626,541 carats sold, compared to US$65.8mln from 586,571 carats sold last year.

Diamond prices dropped 5% on a like-for-like basis but the mining group said this was due to “usual seasonal weakness” and was offset by improved product mix. 

The company had net debt of US$538.9mln at the end of September, up from US$520.7mln in June.

READ: Petra Diamonds' CEO Johan Dippenaar to step down as miner signals end of capex-heavy phase

Petra Diamonds left its full-year production guidance of 3.9mln to 4.0mln carats unchanged.

"The first quarter of FY 2019 shows solid operational delivery, underpinned by strong safety performance, with the ramp-up of our expansion programmes leading to a healthy increase in ROM carat production, thereby supporting our expectation of free cash flow generation and subsequent debt reduction," said chief executive Johan Dippenaar.

Revised South Africa mining charter 

The group said South Africa’s new mining charter that sets out requirements for black ownership levels has removed uncertainty and addressed a number of concerns.

The revised mining charter, introduced in late September, will not impact Petra Diamonds since its operations meet the minimum broad-Based Black Economic Empowerment (BBBEE) ownership requirement of 26%.

Petra still in talks with Tanzania government over taxes

In Tanzania, the company is still in discussions with the government in relation to overdue VAT receivables and a blocked parcel at the Williamson mine, which has not yet been released for sale.

In July, the group announced the proposed disposal of its stake in the  Kimberley Ekapa Mining joint venture in South Africa. The group expects to complete the sale in the second quarter after receiving conditional approval from the South African Competition Commission.

Shares fell 2.03% to 37.72p in morning trading. 

Diamond prices continue to struggle, notes analyst

RBC Capital Markets said first quarter production beat estimates but diamond prices remain under pressure.

"Risks around the ongoing ramp ups still remain and the general diamond market is yet to see signs of recovery with small diamonds most exposed to price fluctuations," it said.

"However, with the share price down 42% year to date and the stock trading at 18.7% free cash flow yield, we would expect a positive reaction from the market on the back of this trading release and begin to restore some of the confidence in the achievability of revised 2019 production guidance."

Quick facts: Petra Diamonds

Price: 2.25 GBX

Market: LSE
Market Cap: £19.47 m

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