Petra Diamonds Regulatory News (PDL)

27 Nov 2006 07:02

Petra Diamonds Ld27 November 2006 For release 27 November 2006 Petra Diamonds Limited Acquisition of Calibrated Diamonds Petra Diamonds Limited ('Petra' or 'the Company'), the AIM-quoted and ASX-listeddiamond group, announces that it has acquired the entire issued share capital ofCalibrated Diamonds Investment Holdings (Pty) Limited ('CDIH' or 'the CDIHGroup') ('the Transaction'). CDIH is focused on the cutting and polishing ('beneficiation') of rough diamondsutilising what Petra believes to be a unique process developed by the CDIH Groupand which enables CDIH to produce polished diamonds of a very high andconsistent standard. The initial cash consideration in respect of theacquisition is R16.3 million (US$2.28 million) which has been funded fromPetra's existing cash resources. A deferred consideration of warrants and cashis payable subject to the achievement of certain production threshold levels, asset out below. The Transaction represents a significant step forward in Petra's objective ofgrowing its diamond revenues, as CDIH will provide Petra with the potential tosignificantly enhance its overall revenues due to the value added from thebeneficiation of rough diamond production. The addition of CDIH's beneficiationbusiness to Petra's production and exploration portfolio makes Petra AIM's firstfully integrated diamond mining group. Reasons for and benefits of the Transaction • The progression of diamonds through the 'diamond pipeline' takes global rough diamond production of around US$12.7 billion to around US$19.3 billion at polished wholesale prices (an increase of approximately 50%); as a producer of its own regular run of mine production, Petra is now able to participate in this value-add pipeline by beneficiating certain of its own production in line with Petra's stated objective of building a true mid-tier diamond group • The Company believes that such beneficiation and value add has the potential, as the initial capacity of Petra's new diamond cutting division is developed over time, to significantly enhance Petra's revenues. Petra will be able to tailor the production process to optimise the potential returns, and having the benefit of regular and reliable run of mine supply is a key factor in that business model • Petra plans to invest around US$4 million in CDIH (to be funded from Petra's existing cash resources) in a staged approach over the next 18 to 24 months with the objective of building up CDIH's production capability; given the potential revenue growth noted above Petra believes the transaction also has the potential to significantly enhance Petra's operating cash flows when production capacity has been increased • Many of the African diamond producing countries are making changes to their diamond and mineral legislation, one of the objectives being to increase the level of beneficiation of diamonds within these producer countries; Petra is committed to the ethical exploration for and production of diamonds in Africa, ensuring that all stakeholders benefit, and this acquisition will enable Petra to be involved in the beneficiation programmes of the countries in which it operates • Petra's unique ability to supply its run of mine production to CDIH will enable Petra to produce polished diamonds that will, due to the transparency of Petra's production profile, be guaranteed to the diamond market as being conflict free; in time, this will give Petra the potential to build on this 'mine to finger' supply chain in the diamond market, which the Company believes is becoming increasingly important given the renewed commitment by the diamond industry to ethical and legal compliance issues Adonis Pouroulis, Chairman of Petra, comments "As the diamond industry evolves,giving more autonomy to African producer countries, Petra is adapting itsbusiness model to suit the needs of the current market. We are excited by theopportunity CDIH brings to Petra's business; test results received to date arehighly encouraging and over time we expect to see value add directly affectingour bottom line. This initiative addresses the changing beneficiation policiesof the various African countries in which we operate, and Petra is proud to beinvolved in such important developments to our industry." Details of the Transaction Petra has acquired the entire issued share capital for an initial cashconsideration of R16.3 million (US$2.28 million), this amount being funded fromPetra's existing cash resources. A deferred consideration will also be payableshould agreed production threshold levels be achieved using the CDIH cuttingtechnology. The deferred consideration is triggered in four stages, when CDIH cuts roughinput of four threshold levels, being 2,500, 5,000, 7,500 and 10,000 carats permonth, for a consecutive period of two months in each case and will be settledby; (i) the issue of warrants over 750,000 Petra shares per threshold level at an exercise price of 114.5 pence per share (the closing mid market price on 2 October 2006, the day prior to the signing of the heads for the transaction) (subject to the approval of the granting of such warrants by the South African Reserve Bank), or at Petra's election (or if Reserve Bank approval is not received), by way of a cash amount equivalent to the notional gain in the value of the warrants had they been granted; and (ii) the payment of an amount based on the EBITDA of CDIH. This amount will be calculated as a three times multiple of 28.36% of the EBITDA of CDIH when each of the above threshold levels is met, less any such EBITDA payments already made in respect of meeting earlier thresholds. Diamonds from Petra's production will be sold by Petra to CDIH for beneficiation at market value; Petra will use an independent valuator to ensure that market value is consistently applied. Ends Note: For the purposes of Schedule 4 of the AIM Rules, the terms of theTransaction provide for a maximum deferred consideration of 3 million warrants,which, as at 27 November 2006, would represent approximately 2% of Petra'sissued share capital, plus the payments based on CDIH's EBITDA. The ultimatevalue of the warrants will subsequently be dependent on the future performanceof Petra shares. The precise cash consideration cannot be calculated due to themethod of deferred consideration calculation. In the case of an extremeappreciation of the Petra share price and value of the warrants, in order toensure that the Transaction does not trigger the Consideration Test of ScheduleThree of the AIM Rules, a nominal maximum consideration of £100 million is aterm of the Transaction. In the opinion of the Directors, the likelihood ofthis cap being achieved is remote. For further information, please contact: Justine Howarth / Cathy Malins Telephone: +44 (0) 20 7493 3713Parkgreen Communications, London Notes to Editors: Overview of Petra's Operations O Petra is focused on the exploration, mining and beneficiation of diamonds in Africa. Petra's strategy is to continue to build its portfolio of revenue producing and exploration assets, achieving the objective of becoming a true 'mid-tier' diamond group. O Petra has operations in Angola, South Africa, Botswana and Sierra Leone. Petra is well placed to achieve high yielding results from the increasingly robust market for diamonds. O Petra's exploration activities at Alto Cuilo in Angola continue to deliver ever more exciting results and the joint venture with BHP Billiton has expedited exploration with the identification to date of 62 kimberlitic occurrences together with diamond indicator mineral results comparable with some of the world's economic diamond deposits . O Petra and AIM quoted Xceldiam Limited have entered into a strategic cooperation agreement with regards to the neighbouring Luangue and Alto Cuilo diamond projects O The South African operations delivered a significant increase in production to 175,000 carats for the year to June 2006. Further increases in production are expected for the year to June 2007 and beyond. O In Botswana, exploration is currently focused on the Gope area where Petra holds diamond prospecting licences covering ground that is known to host several diamondiferous kimberlites. O In Sierra Leone, Petra has earned a 51% interest in the Kono Project, following the expenditure of US$3million on the project. This JV with AIM and TSX-listed Mano River Resources Inc is progressing well and first production from the Lion fissures was reported for June 2006. For further information on Petra Diamonds, please visit www.petradiamonds.com This information is provided by RNS The company news service from the London Stock Exchange