Diamond mining strikes hard times, says producer

Diamond mining junior Petra Diamonds, the AIM-listed diamond producer with operations in South Africa, on Friday warned that the diamond mining industry faces difficult times in the year ahead.

“The global financial environment requires a change in commercial approach, and that has been recognised and acted upon by the Petra Diamonds board,” said company CEO Johan Dippenaar.

Petra Diamonds said in a statement to the JSE that it has carried out a strategic review of its exploration activities, taking into account the global weakness in financial markets and the production and revenue growth that can be achieved by investment into the group’s production portfolio, as compared to continued spend on exploration.

“Our focus now is to continue to build cash-positive production, while maintaining rigorous cost control,” he said.

In line with this decision, the company has decided to withdraw from the Alto Cuilo project in Angola as from the end of December and is reviewing its options with regards to the Luangue project, with the focus at Luangue being on a substantially reduced exploration spend and a highly targeted work programme.

The company has also decided to substantially reduce both the level of activity and commensurate spend in Botswana, but said it would not give up any of the licence areas of interest.

In Sierra Leone, the company said it was discussing options regarding the Kono project with its joint venture partner Stellar Diamonds with a view to substantially reducing Petra’s monthly cash spend on this advanced exploration project

“This change in focus will reduce Petra’s early stage exploration [Angola, Botswana] and advanced exploration [Sierra Leone] spend from approximately $25-million per annum to approximately $5-million per annum [effective January 2009], with the potential to reduce this by $4-million, further depending on the results of the Luangue and Kono reviews,” the company said.

Providing a trading update for the six months to end December, the company reported a 422% increase in gross production to 528 636 carats (estimate for balance of December) from 101 213 carats produced in the same period a year ago.

Gross revenue from rough diamond sales climbed 52% increase to $48,1-million from $31,7-million in the six months to end December 2007.

Group revenue, when adjusted for Petra Diamonds’s 37% interest in Cullinan, from rough diamond sales for the period dipped to $31,1-million from $31,7-million.

This substantial growth in gross revenue was mainly due to the Cullinan mine coming on stream from mid-July, but was offset by weaker diamond prices in the latter half of the six-month period and reduced sales at Koffiefontein as a result of the release of diamond inventory in the comparable period.

“These strong trading results are as a result of the production and revenue contributions from the Cullinan and Koffiefontein mines.

“The company has been transformed by the acquisition of these mines, and with the Kimberley Underground and Williamson mines adding further production in the next six months we are comfortable in deciding to relinquish the capital-intensive exploration projects that have historically been Petra Diamonds’s focus,” said Dippenaar.

“Although the diamond mining industry faces difficult times, given the current weakness in the financial and diamond markets, we believe we enter 2009 in a strong position,” he said.-I-Net Bridge

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