Shares of Petra Diamonds (LON: PDL) shot up almost ten percent Friday when the company announced the discover as a massive, 425 carat diamond in its main diamond mine in South Africa. Earlier the company had revealed it had found a 100-carat white diamond in the same mine, which is known for producing the largest diamond in the world back in 1905.
The announcement was seen as a financial boost for the UK mining company and would help offset the poor price for low-quality diamonds that has been troubling diamond miners for the past while. The discovery of the 425 D color type II quality diamond “further demonstrates the prevalence of these types of stones in the Cullinan orebody as well as the ability of the mine’s plant to recover the full spectrum of diamonds,” said the company, which went on to say that the stone would be sold in the fourth quarter of the company’s 2019 financial year.
RBC Capital Markets went on to add that the discovery of these massive diamonds proves that Petra has the ability to consistently produce higher quality stones. “This is encouraging as it comes after a 101-carat type II stone on March 8. These stones reaffirm management’s message on the prevalence of these higher value stone types at Cullinan and that the mine’s plant is successfully recovering them. Any higher value stones will undoubtedly help to offset ongoing challenging price trends in lower value stones as was recently highlighted by a recent weak second straight sight (sales cycle) from De Beers.” The bank added that “To us, today marks another important step in the right direction and should provide a boost for financial and operational perceptions around the company. We are of the view that market pricing is nearing the lows and today’s stone continues to justify our cautiously optimistic stance that a recovery in Cullinan pricing comes in time as the block cave (at Cullinan) continues to ramp up.”
Diamond mining companies have been struggling over the past couple of months as an abundance of cheap, low-quality diamonds continue to oversupply the global markets. This has led to some of firms refusing to buy these diamond, with back in December some of Rio Tinto’s (LON: RIO)(ASX: RIO) customers absolutely rejecting these stones, while De Beers has ended up having to offer a variety of incentives to get their clients to take on these low-quality diamonds.
“Demand for rough diamonds remained consistent during the second sales cycle of 2019,” added Bruce Cleaver, CEO of De Beers. “While overall demand for lower value rough diamonds remain subdued, we did see an increase in demand from India as factories begin to restock.”
In response to the announcement, shares of Petra Diamonds increased by 8 percent on the London Stock Exchange, helping improve the company’s stock as shares have been declining drastically over the past couple of months. Overall, shares have plunged from £44.5 in January to under £20 in just a couple of months, with the appointment of a new CEO doing little to stop the decline.
