Charlotte Mathews
22 December 2008
Johannesburg — MINING and exploration company Petra Diamonds is cutting $20m from its annual diamond exploration budget, mostly by reducing its activities in Angola.
The company's stock, listed on AIM in London, shed 3p or 4% to 71p on Friday after the announcement, despite a generally upbeat trading update on the year to December.
Petra's share price halved in the past year from 144,5p with the negative short-term outlook for diamond prices and investor aversion to smaller firms.
The company said on Friday it had decided to scale down exploration spending as it could grow revenue and production more by investing in its producing mines than undertaking early-stage exploration. It decided to withdraw altogether from its Alto Cuilo licence and scale down activities at Luangue, in Angola.
Earlier this year, BHP Billiton withdrew from its participation in Alto Cuilo and Luangue. But Petra Diamonds insisted at the time it was happy to have a greater share of Alto Cuilo, which had shown a higher than normal number of prospective kimberlites.
Petra has also cut back on exploration activity in Botswana, but will not lose its concessions there, and is "discussing its options" on its Kono project in Sierra Leone with its joint venture partner.
CEO Johan Dippenaar said Petra was comfortable in relinquishing capitalintensive exploration projects, which had traditionally been its focus, because its acquisitions of Kimberley Underground in SA and Williamson in Tanzania would add more production in the next six months.
Petra's operating mines are all in SA, and include the Cullinan and Koffiefontein mines, bought from De Beers, and Star, Helam and Sedibeng.
It said that after adjusting capex plans, these mines, except for Star and Helam, would be cash positive at current rough diamond prices. Star and Helam might have to be put on care and maintenance,
In the six months to December, Petra's revenue from diamond sales, based on its 37% stake in Cullinan, fell marginally to $31,1m compared with the previous corresponding period. At Cullinan, Petra is concentrating on recovering large , special diamonds, which has resulted in significant improvement in the average value realised a carat to $91 compared with original expectations of $75.
Petra has also sealed deals with De Beers to buy Kimberley Underground and 75% of the Williamson mine in Tanzania. It expects the Kimberley Underground deal to be completed early next year and Williamson "shortly".
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