Petra Diamonds is in sparkling form after announcing another discovery from its Cullinan mine in South Africa.
The company's shares have jumped 10p or nearly 6% to 186.8p after it announced the recovery of an "exceptional" 232.08 carat white diamond, which analysts said could be worth up to $15m. Rob Broke at Westhouse Securities said:
Petra Diamonds [has discovered] a 232carat D colour type II diamond which we estimate could be worth around $10m-$15m. Following the recovery of a 122.5carat blue diamond in June, which is currently in a sales process, 2015 looks set to be a strong year for Petra. We are upgrading our recommendation from add to buy on the back of recent share price weakness, which has brought the stock back to an attractive level.
The 232carat diamond follows in a long-line of exceptional diamonds which have been recovered at Cullinan, with the mine having produced more than 750 diamonds of over 100 carats during its history. Petra recently announced that since the acquisition of Cullinan in 2008, exceptional diamonds have added around $18m per annum to the company's revenue. This has increased to $26m per annum for the last two years, and does not include the 122.5ct blue diamond which is currently in a sales process. We model a long-term input of $20m per annum from these stones. As production grows, we would expect the recovery of exceptional diamonds to increase as well.
Canaccord Genuity analysts were also positive on the business:
Given the potential variability in diamond quality, we think it may be misleading to evaluate the current stone based on its carat weight and previous per carat prices achieved. However, we note that the two special white diamonds (126 and 91.5 carats) were sold for an average of $54,000 a carat in 2014. This may imply a total value of around $12.5m for this stone, providing a potential 2% boost to our current 2015 revenue estimate.
We think the recent share price weakness is a result of the seasonal slowdown in the polished diamond market, which can affect rough diamond prices negatively in the second half. Given that the long-term diamond market fundamentals remain robust, we see the current weakness as a buying opportunity.
