By Sharon Lindores, Reuters

LONDON -- Petra Diamonds said on Tuesday it had recovered one of the world’s 20 largest, high-quality white diamonds at the Cullinan mine in South Africa.

The massive 507.55 carat diamond, found on Sept. 24, could be worth about US$20-million, and is expected to cover costs at the mine for two years, Finance Director David Abery said. (507.55 works out to just over 100 grams).

“Initial examinations indicate that it is of exceptional colour and clarity,” Petra Diamonds said, adding it was found alongside other large white diamonds of 168 carats, 58.50 carats and 53.30 carats.

“The Cullinan mine has again given the world a spectacularly beautiful and important diamond,” said chief executive Johan Dippenaar, noting Cullinan was the source of the world’s largest gem diamond ever recovered, at 3,106 carats rough.

Petra Diamonds, which also announced its full-year results, said mining profit had fallen, but it was geared for growth as the diamond market showed signs of recovery.

Earlier this year diamond prices dropped by up to 65% from highs in mid-2008 but are now about 35% off those highs, Abery said in an interview with Reuters.

Petra shares had risen 7.1% to 67.5 pence by 1020 GMT, outperforming a 1.3% decline in the UK mining index.

“The Petra business is now geared for further growth,” said chairman Adonis Pouroulis, adding the company planned to scale down exploration and focus on production.

“As the diamond market continues to show positive signs of recovery, we are well placed to benefit from the economic potential of our quality mining assets,” he said.

Petra posted mining profit of US$7.8-million for the year ending June 30, compared with US$38.8-million the previous year.

It posted a net loss of US$88.9-million, US$75-million of which was due to a one-off asset writedown at the half year.

In an analyst note Ambrian reiterated its buy stance and raised its target price from 61 pence to 80 pence per share.

“The company is not only back into a profitable mode, but should have a substantially strengthened balance sheet with the sale of large stones,” Ambrian analyst Brock Salier said.

In July, the group posted a five-fold rise in annual production to 1.1 million carats, but said revenue fell to US$69.3-million from US$76.9-million.

The company is speaking with global development banks in Tanzania about expansion of the Williamson mine there, which could cost US$40-million to US$45-million, half of it from project financing loans, though Abery said the company would only raise money for the upgrade if market conditions were right.

Abery said he expected diamond prices to stabilise around current levels then recover during the next two to four years.

© Thomson Reuters 2009