Petra Diamonds (Price: 135p | Target: Under Review | Rec: Buy) 6 month trading update reflects 31% yoy growth in production to 1.636m carats (Investec 1.384m) with company affirming 3.0m carat guidance for the year.

Revenue up 19% yoy to US$185.5m (Investec US$179.6m), with H2 expected to be stronger due to timing of sales.

The company indicates that costs remain in line with guidance.

Capex in the period totalled US$85.3m (Investec US$98.4m).

The balance sheet remains in good shape with net debt of US$118.1m and a further US$37.5m available to the group. * The increase in output was largely due to higher production from Finsch to 974k carats, up 52% yoy due to plant changes including lowering the cut off, that despite leading to a lower average carat value (US$96/carat) has led to a higher revenue per tonne of around 10%.

The company’s other flagship asset, Cullinan, put in a strong performance as tailings operations ramped up, leading to 13% yoy output growth to 461k carats.

The operation did have to catch up lost production from strike action in 1QFY14, however improved grades to some extent offset lost output.

The company’s other assets also performed well, with the exception of Helam, although this mine’s contribution to the group is almost negligible in comparison to the rest of the asset base. * Diamond market conditions were mixed, with a weaker 1QFY14 that firmed toward the end of the period.

Prices achieved for diamonds sold were largely in line with expectations.

The company expects diamond prices to continue to firm.

We note that Petra’s second half is typically stronger from a sales perspective due to the timings of site holdings which should enable the company to benefit from the expected stronger market conditions.

5 special stones in the period generated US$15.5m of revenue, and we note the recent recovery of a 29.6 carat blue diamond that will boost this further. * We value Petra on a 50:50 mix of risked NPV and sector relevant P/E ratios and will be updating our forecasts and TP following this strong set of results.
To access the full note please click here Analyst: Marc Elliott +44 (0)20 7597 5189
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