Interactive Investor

Petra Diamonds sell-off "an opportunity"

30th July 2014 15:51

Lee Wild from interactive investor

Petra Diamonds got a kick in the teeth from its second largest shareholder yesterday, just a day after an encouraging production update. But there's a sense in the City that sellers who followed suit have jumped the gun.

Up at a best-ever 220p towards the end of trading on Monday, Petra's share price plunged as low as 191p early Tuesday as insiders got wind that Awal Bank was heading for the exit. The company, owned by Saudi billionaire Maan al-Sanea and a long-time shareholder, offloaded 43 million shares at 190p each, trousering a massive profit.

But analysts at Barclays reckon this is an opportunity. "We are unsighted on the exact rationale behind the sale but feel the 10% price correction is overdone given the investment case for Petra," it said. "Moreover, the additional liquidity is well needed for the stock which only trades $4 million [£2.36 million] a day."

Petra said Monday it was close to achieving its five million carat (Mcts) output target by 2019, in time to benefit from a strengthening diamond market.

Production dipped in the fourth quarter, but a 17% rise in annual output to 3.1Mcts was still above management guidance, driven by the Finsch mine in South Africa where output was up a third, and by Koffiefontein - up 45%.

Higher than expected diamond prices helped revenue grow by 17% to almost $473 million, and Petra ended the period with net debt of $125.6 million, as expected.

We'll get more detail in full-year results on 22 September, but Petra said costs were "well controlled," despite inflationary pressures. Capital expenditure grew 9% to $210 million due to its expansion programme, which saw the company add over 4,000 development metres at Finsch. Nearly 6,000 metres were added at Cullinan and waste development delivered nearly 2,000 metres at Koffiefontein.

An "exceptional" 122.5 carat blue diamond was recovered at Cullinan in June, which is expected to sell in the 2015 fiscal year. It's widely expected to become the one of the most expensive rough diamonds ever sold, worth over $26 million, according to reports.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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