Join our community of smart investors

Petra Diamonds loses its shine

Diamond miner Petra has lowered its near-term production guidance, but in the longer term it should benefit from higher diamond prices and operational improvements

Petra Diamonds (PDL) saw its stock fall from an all-time high after the mining group lowered its near-term production guidance, prompting analysts to trim earnings forecasts.

IC TIP: Hold at 190p

Management says weaker grades and rising costs, especially at the flagship Cullinan mine in South Africa, are to blame. Cullinan is one of the oldest and most famous diamond mines in the world, producing more than a quarter of the world’s biggest diamonds, defined as those with more than 400 carats. These include parts of the Crown Jewels as well as rare blue diamonds.

Petra took control of the mine in 2008 and is still working its way through previously mined areas, including a significant proportion of tailings. This is set to decline in the years ahead, however, as the company moves further underground to unlock more high-grade fresh ore. In June, however, Petra recovered at Cullinan an exceptional 122.5-carat blue diamond, which it expects to sell later this year.

Rising production and strong diamond prices helped drive a summer rally in Petra’s share price, but it dropped 10 per cent in one day in July after a major shareholder announced it had dumped about 43m shares, representing 8 per cent of the outstanding stock. They were owned by Awal Bank, a bankrupt Bahrain-based lender that the country's central bank put into administration in 2009. Awal still owns 13.2m shares subject to a 90-day lock-up.