Welcome to Company Focus. My name is Aamer Nawid, Analyst at Fat Prophets and today we're going to add a bit of bling to Company Focus by looking at AIM listed diamond producer Petra Diamonds. It's a company that has basically made quite a significant acquisition in South Africa last week.

As you can see from the chart here, Petra Diamond share price has done very well over the last six months mainly due to the strong sort of underpinning fundamentals that are sort of holding up the diamond market right now.

Demand is strong. Supply is tight. Mine operations, existing mine operations, are past peak production levels. New discoveries aren't being found too quickly and exploration recovery is generally quite slow.

Petra is well aware of these issues and in terms of overall diamond output globally you can see here that in the years ahead of us diamond production is set to be a little bit below years previous.

Now as I said, Petra is very aware of this sort of dynamic and recently released production numbers for the six months to the end of 2010 show that the company's flagship mine, its Cullinan mine, produced, or processed more ore but it actually produced fewer diamonds or carats.

Now Cullinan produced famously the $35m 507 carat Cullinan heritage diamond and it will continue to be hamstrung by lower grades until the mine is basically expanded and expansion work opens up new areas off the mine.

Now that kind of underscores what's happening across a lot of the resources spectrum. It's basically costing a lot more, mining expansions are expensive. It's costing a lot more to get stuff out of the ground and therefore, the outlook, that's one of fillip for the outlook for commodities prices.

Actually the acquisition of Finsch gold mine in South Africa, Petra has actually pulled off a bit of a coup. It's not only the second largest diamond mine in South Africa in terms of production, but it's also one of the worlds most prominent.

Investors liked the news. (You can see here a chart sort of closer in.) Basically, very enthusiastically received. Investors clearly took notes of the fact that Finch brings to the table 50m carats and that pushes Petra's resource base through to above 300m carats which is very, very significant. It cost $220m so it's not pocket change, but they raised the cash through a $325m placing recently at £1.50 a share, which, by all accounts, was very easy.

Finsch is actually a welcome addition to a portfolio of producing assets which is full of mines at different levels of their maturity.

Now production for Petra in the six months, for the last six months of last year, actually fell by over 5 per cent. That was down to a planned shutdown in Tanzania at one of their mines there as well as the low grade issues that I've talked about at Cullinan.

Elsewhere though things are okay. In South Africa the Koffiefontein mine produced, or processed 56 per cent more ore and produced 11 per cent more carats, diamonds.

In terms of the Kimberley underground mine, that also produced 25,000 carats during the period which is a decent enough result.

The remaining three mines, so Finch is going to be basically producing mine number eight, the remaining three mines are grouped together in what's known as the Fissure mines and they too posted a production increase of 4.5 per cent having put through, processed, 33 per cent more ore. So 45,000 carats produced there; all looks pretty good.

Now these production numbers are decent enough. Before last week's news I was very confident that the 1.3m carats output for the full year was going to be achieved. However, obviously the Finsch acquisition has put a new light on things. Before last week, the production profile going forward was enough of a carrot, if you like, enough to tempt investors into Petra.

As you can see here, this is before the Finsch effect. You can see the rise in production profile is one of the reasons why I'm sort of quite optimistic for the long-term earnings outlook for Petra.

Now overall, I suppose Petra's management have reminded us that diamonds are a late commodity, sort of late cycle commodities place, so the diamond story might just be getting going. Demand is robust coming out of India, China and the Far East and as I said, supply basically plays in the hands of higher diamond prices.

Now there is different ways of playing this. Many investors choose the diversified miner route BHP, Rio Tinto. Those big miners do have diamond operations. Anglo American owns 45 per cent of De Beers.

But if it is a pure play diamond producer that you're after, you're going to do well to find a more compelling play than Petra Diamonds. If things carry on the way they are, then I suppose the company will move from the AIM to the official list. We've seen in recent history what a boost that can be to the share price.

Thanks for watching. Make sure you tune in again next time.