Johannesburg - Petra Diamonds will not curtail its plans to increase production to a million ounces by June this year, despite the dramatic downturn in the market that has forced bigger producers to cut output.
"If you look at the total market of 160 million carats as it was, our production will be just one million carats or 0.7% of the market,' said Petra CEO Johan Dippenaar.
"The major companies, like De Beers, Alrosa and Rio Tinto, have announced major cut backs in production so our volumes will not seriously impact the total market," he told Miningmx.
De Beers, the largest producer of rough diamonds, has said it will make "significant" cuts to production this year, but its directors have refused to be drawn on exactly what that figure will be.
De Beers put its mines in Botswana into care and maintenance. Botswana is the single largest source of rough diamonds for the company that produced 48 million carats, of which 32 million came from Botswana.
A number of small alluvial diamond producers operating in South Africa have stopped production and stocked inventory until the market recovers.
RBC Capital Markets estimated that some 25 million carats out of the 160 million could be cut from production.
"In Petra's opinion the number could in fact end up being significantly higher," said chairperson Adonis Pouroulis.
Petra said its five South African mines would be cash-flow positive at current rough diamond prices. It maintains that its tenders to sell diamonds are well attended and the parcels offered for sale have all been bought.
The majority of Petra's one million carats will come from the Cullinan mine, which Petra and its consortium partners acquired from De Beers in July 2008.
Management estimated this financial year's output at Cullinan to be 950 000 carats after achieving a better-than-expected 455 597 carats in the half year to end-December 2008.
Petra's interim production increased by 444% year-on-year to 550 413 carats, but despite the increased output gross profit fell to $10m from $15.5m.
The Cullinan diamonds will come from the B-Cut, which is underlain by the yet-to-be-developed C-Cut, the future of the mine with its 133 million carat resource.
"We are establishing the economic parameters for the project and no preliminary decisions with regards to time and scale of development as well as associated capex will be considered until diamond prices normalise," said Pouroulis.
The poor diamond markets weighed heavily on Petra, which had to impair a number of its assets as well as its Angolan exploration projects which it exited at the end of 2008. Petra posted a loss of $88m against an $8m profit a year earlier.
Petra also cautioned that the rate of development and expansion of the recently acquired Williamson mine in Tanzania depends very heavily on whether it can raise funds as it hopes to from development agencies and banks.
"Should such funding not be forthcoming, then the expansion plans will be revised until the global financial situation improves and debt financing becomes more straightforward to obtain," Pouroulis said.
Petra expects Williamson to produce 150 000 carats in its first 12 months of operations under its control. The plan is to bump that figure up to 500 000 carats/year.
Exploration expenditure has been cut to the bone, with $500 000 to be spent in Botswana for the remainder of the current financial year and then annual expenditure there to be maintained at that level.
Exploration has been cut in Angola and Sierra Leone, trimming $25m out of annual expenditure.
- Miningmx.com
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