Petra Diamonds is seeing sparkling growth

Whether diamonds are forever, or just a girl's best friend, there is no doubting the economic power generated by their allure to the female of the species. Measured by value, some 80-90% of the world's production of diamonds is used for jewellery. Something like $10 billion per year in rough diamonds gets turned into retail sales of jewellery worth six or seven times as much.
Judging by the interim results for Petra Diamonds (LSE: PDL), there is no question of diamonds losing their sparkle. With constrained supply, a rebound in western demand, and a voracious appetite from the emerging middle classes of India, China & Bangladesh, diamond prices have recovered to above 2008's pre-recession levels.
That is good news for the diamond miners in general, and good news in particular for Petra, the largest pure play listed diamond miner.
Following a string of acquisitions, Petra has seven producing mines. Six of these are in South Africa, where it owns between 70% and 74% of each mine (together with various Black Economic Empowerment partners) and the seventh is in Tanzania, where it has a 75% interest alongside the government's 25%.
Production is dominated by the Cullinan mine, which yielded 80% of the half year's output of 582 thousand carats.

Finsch

Last month Petra agreed a $210m acquisition of South Africa's second-largest mine, Finsch, from De Beers. This will more than double Petra's current production of 1.3 million carats per year.
Finsch is an efficient mine which will diversify Petra's operations, and generate synergies from its close proximity to existing mines. It will add 48 million carats of un-mined resources to Petra's existing 261 Million carats, resulting in gross resources, at current diamond prices, of $38 billion.
The acquisition was financed from a placing of shares at 150p, raising $325m, with the balance being used for working capital and capital expenditure (capex). Despite the dilution, the transaction is expected to be immediately accretive to net asset value per share and cash flow per share.
Petra has upgraded its ambitious growth targets and now aims to increase annual production to around 4 million carats by 2013/14, and over 5 million by 2018/19.

Results

The group's profit from mining activities tripled to $24.5m as the strength of diamond prices outstripped a 25% increase in Rand operating costs.
Production was down by 5% due to the cessation of working at the Williamson mine in Tanzania whilst its capacity is expanded. That and expansion at Cullinan were responsible for a $48m capex spend, dwarfing the $10m depreciation charge.
The company envisages spending $320m capex over the next six years, to be financed from operational cashflow. That looks a stretch target to me, and certainly not conducive to paying dividends.