Petra Diamonds’ H1 output up 31% in fiscal 2014

Petra Diamonds (LSE: PDL) is in good shape to meets its fiscal 2014 guidance of 3 million carats.

For the six months ended Dec. 31, 2013, Petra produced 1.64 million carats, up 31% from a year ago. The boost came on the back of higher output from its key Finsch mine in South Africa, which accounted for nearly 60% of the carats recovered in the first half of fiscal 2014.

Also in South Africa, Petra operates the Cullinan, Koffiefontein, Kimberley Underground and Helam diamond mines, while in Tanzania it runs the Williamson mine.

Finsch was Petra’s only South African operation that was unaffected by the 2.5-week labour disruption that started on Aug. 29, 2013. But the operational teams at Petra’s other South African mines “have done very, very well to make sure that we end our half year in line with where we ought to be,” said chief executive Johan Dippenaar on a Jan. 23 conference call.

Asked if the current labour strikes at South Africa’s major platinum mines may carry over to Petra’s diamond operations, Dippenaar said the chances for that happening are slim.  “We certainly hope it won’t affect our operations… Our guys that wanted to make a statement [last year] made it. We’re currently enjoying good relationships across all our mines.”

The best performers during the first half included: Finsch with 974,431 carats, up 52%; Koffiefontein with 63,436 carats, up 51%; and Cullinan with 461,338 carats, up 13%.

Revenue rose 19% to US$185.5 million on sales of 1.42 million carats.

Commenting on the results, BMO analyst Edward Sterck noted Petra’s average realized diamond price was US$131 per carat, in-line with his expectations, while revenue was off 12% as he estimated sales of 1.57 million carats.

“Although sales missed forecast, the timing of tenders means that only five months of production were sold in H1 with sales expected to rebalance in H2,” he wrote in a Jan. 23 note.

The company said the “sales were lower than carats produced due to the seasonal timing” of its tenders.  Petra usually holds three tenders representing five months of production in the first half of the fiscal year and four tenders equating to seven months of production in the second half.

For this reason second-half revenue should be stronger. Also helping those earnings is the expected sale of the recently recovered 29.6-carat rare blue diamond from the Cullinan mine, known for generating high-quality blue stones.

Last May, Petra sold a 25.5-carat blue gem from Cullinan for US$16.9 million. If the larger new stone fetches at least US$15 million, it could boost the company’s fiscal 2014 earnings by more than 10%, Sterck wrote in a Jan. 21 note. But he points out the realized price for a special stone largely depends on the quality and cut of the rough diamond.

The rough diamond market has also improved over the past months and should continue to stay firm during the upcoming months, Dippenaar says.

Petra’s capital expenditures are expected to come within its fiscal year guidance, with US$85.3 million spend during the first half.

As of Dec. 31, Petra had US$27.5 million in cash, and a net debt of US$118.1 million.