Petra Diamonds Regulatory News (PDL)

22 Nov 2007 07:51

Petra Diamonds Ld22 November 2007 22 November 2007 AIM: PDL Petra Diamonds Limited Acquisition of Cullinan Diamond Mine Petra Diamonds Limited ("Petra" or "the Company" or "the Group") announces thatit has, as a member of the Petra Diamonds Cullinan Consortium ("PDCC"), enteredinto an agreement ("the Agreement") with De Beers Consolidated Mines Limited ("De Beers") to acquire the Cullinan diamond mine ("Cullinan") in South Africa ("the Transaction"). Highlights • PDCC to acquire Cullinan from De Beers for a total cash considerationof R1 billion (US$149.0 million); Petra's share of the consideration is R325million (US$48.4 million) • The Transaction represents a major development towards achieving Petra's strategy of value creation for its shareholders by growing its production and revenue base alongside its world-class exploration portfolio. A major producing diamond asset such as Cullinan very rarely becomes available, and PDCC is proud to be acquiring the assets after a long, transparent and competitive tender process • According to information made available to Petra by De Beers, theCullinan kimberlite pipe is the second largest indicated diamond resource in theworld by in-situ value • In the year to December 2006, De Beers produced 1.15 million carats atthe mine, with a market value of R504.9 million (US$75.2million); Petra will bethe operator and will (as at Koffiefontein) make production changes at the mine.Petra expects PDCC's average annual production from Cullinan will meet, andpotentially exceed, the recent production achieved by De Beers addingsubstantially to Petra's group revenues (37% interest) • Many of the world's most spectacular diamonds have been recovered atCullinan, including the 3,106 carat Cullinan Diamond, the largest gem diamondever found. It was cut to form the 530 carat Great Star of Africa and the 317carat Lesser Star of Africa set in the Crown Jewels of Britain. The mine isrenowned as a source of large diamonds and has produced over 300 stones weighingmore than 100 carats, and around a quarter of all of the world's diamondsweighing more than 400 carats. Cullinan is also the world's only significantsource of blue diamonds, which are highly desirable in the jewellery market • The members of PDCC are Petra Diamonds Limited (37% initial interest), Al Rajhi Holdings W.L.L. ("Al Rajhi") (37% initial interest) and PDCC's Black Economic Empowerment ("BEE") partners (26% interest). Petra can at its option increase its interest in PDCC (from Al Rajhi) based on performance of the mine and pre-agreed option payments. PDCC will be funded by Petra US$50 million and Al Rajhi US$150 million; the total funding of US$200 million will be applied to the purchase consideration of Cullinan of R1 billion (US$149.0m), with the balance for the mine's working capital and Capex requirements. The BEE partners will pay for their interests from their share of future cash flows from the mine, after servicing interest at appropriate interest rates, or they can arrange independent financing • The BEE partners are represented by Thembinkosi Mining Investments (Pty) Ltd ("Thembinkosi"), a consortium of BEE mining companies with a 14% interest, and a broad based Petra employee share trust with a 12% interest that will ensure that all Petra employees can benefit in the mine's success. This structure is very important as it includes all HDSA (Historically Disadvantaged South Africans) Petra employees in the mine's future, not only achieving the objectives of the South African Mining Charter, but underscoring Petra's belief in employee participation for the benefit of the business and the employees themselves Adonis Pouroulis, Petra's Chairman, commented, "A major producing diamond assetsuch as Cullinan very rarely becomes available and Petra is, with its consortiumpartners, very proud to be acquiring such a prestigious asset following acompetitive tender process. The transaction is a historic development for Petra.It brings a major resource to the group with the expectation of addingsignificantly to annual production, elevating Petra into the league of theworld's major diamond producers." David Noko, Managing Director of De Beers said: "We are particularly pleased tohave been able to conclude this transaction with PDCC. We believe that Petra'strack record as a hardrock underground miner bodes well for the long-termsustainability of Cullinan Diamond Mine going forward, and are confident thatthis will help ensure a long-term opportunity for the Petra-led consortium asthe new owners of the mine, as well as guarantee continued investment in thetown of Cullinan for many years to come." About Cullinan The Cullinan kimberlite pipe (to the east of Pretoria, South Africa) wasestablished in 1903 and has been mined for many years as a block cave mine. DeBeers is of the opinion that it is the second largest indicated diamond resourcein the world by in-situ value (estimated by De Beers at 193.1 million carats). Many of the world's most spectacular diamonds have been recovered at Cullinan,including the 3,106 carat Cullinan Diamond, the largest gem diamond ever found.It was cut to form the 530 carat Great Star of Africa and the 317 carat LesserStar of Africa, set in the Crown Jewels of Britain. The Cullinan Diamond wasfound in the early surface working of the mine and was named after Sir ThomasCullinan, who discovered the kimberlite deposit in 1898. Cullinan is renowned as a source of large diamonds and frequently yieldsdiamonds larger than ten carats. Furthermore it has produced over 300 stonesweighing more than 100 carats, and around a quarter of all of the world'sdiamonds weighing more than 400 carats. During the last 15 years Cullinan hasproduced more than 500 stones each weighing more than 60 carats. More recently,two stones weighing 363 carats and 285 carats were recovered in successiveproduction series in 1997 with a combined value in excess of US$23 million. Inthe previous series, also in 1997, a 698 carat stone was recovered. Cullinan is also the world's only significant source of blue diamonds, which arehighly desirable in the jewellery market. Cullinan gave the world the collectionof 11 rare blue diamonds which were displayed in 2000 at London's MillenniumDome alongside the Millennium Star. This exquisite collection included the 27carat (polished weight) fancy vivid blue 'Heart of Eternity'. Other notable diamonds from Cullinan include the Premier Rose (353 carat rough),the Niarchos (426 carat stone), the 599 carat rough De Beers Centenary, thefamous Taylor-Burton diamond and the Golden Jubilee. This means that Cullinan isthe source of not only the world's largest rough diamond but also the twolargest polished diamonds in the world - the Golden Jubilee (at around 545carats) and the 530 carat Great Star of Africa. Rationale for the Transaction It is Petra's stated objective to continue to build its production basealongside its world class exploration portfolio, further enhancing the Group'sposition in the diamond mining industry. Cullinan comprises two parts, the first being the current operating mine and thesecond being the Centenary-Cut ("the C-Cut"), a world class, unexploited diamondresource. The operating mine consists of an underground block caving operation,processing plant and related infrastructure. Over the last ten year period (1997to 2006), De Beers mined 14.5 million carats at an average recovered grade of43.6 carats per hundred tonnes ("cpht"). The operating mine has reserves to produce in excess of one million carats perannum at Petra's planned extraction rates. In addition the operating mine hasadditional mineral resources which are expected to add significantly toCullinan's life of mine (excluding the C-Cut). Production will be furtherenhanced by the processing of the mine's substantial tailing resources. The C-Cut lies beneath the current mine. De Beers has conducted numerous studiesinto development of the C-Cut resource and the documentation put together duringthese studies was made available to Petra during due diligence of the mine. Theknowledge gained during Petra's initial production stages with regards to grade,sales values and operating costs will assist in determining the most efficientway to develop the C-Cut resource. Petra's management remains confident that theC-Cut will be included in future mineral reserves and resources statements, andis looking forward to assessing the potential of this world-class resource. Petra will be the technical operator of the mine on behalf of PDCC; Petra's teamhas proven their depth of expertise at the various underground mines that itoperates, most recently at Koffiefontein. Petra is developing a highlysuccessful track record in its approach to such assets. Petra expects itsaverage annual production from Cullinan will meet, and potentially exceed, theproduction achieved by De Beers adding substantially to the Petra grouprevenues. Funding and Consortium Structure PDCC will be funded by Petra US$50 million and Al Rajhi US$150 million; thetotal funding of US$200 million will be applied to the Cullinan purchaseconsideration with the balance for the mine's working capital and Capexrequirements according to the PDCC business plan for the mine; the PDCC BEEpartners' 26% interest in Cullinan will be funded from the Petra/Al Rajhi SPV,such funding being repayable from the BEE partners' share of future cash flowsat appropriate interest rates, or by independent financing. The consideration of R1 billion will be secured by way of a bank guarantee forR325m (US$48.4million) and shareholder guarantees for the balance. Al Rajhi hasprovided both guarantees on behalf of PDCC. In consideration of the issue of thebank guarantee, Petra has granted Al Rajhi a warrant over 1.5 million Petraordinary shares ("the Warrant") , the Warrant being exercisable at a price of180 pence per share at any time until 22 November 2009, being 24 months from thedate of grant. The members of PDCC are Petra (37% interest), Al Rajhi (37% interest), andPDCC's BEE partners (26% interest), namely Sedibeng Mining (Pty) Limited(6.16%), Umnotho weSizwe Group (Pty) Limited (5.04%) and Namoise Mining (Pty)Limited (2.8%) (all represented through a BEE holding company, Thembinkosi (14%total), and an employee share trust that will be established for Petra groupemployees holding 12%. Terms of the Agreement PDCC is to acquire Cullinan as a going concern (the mining and associated assetsas well as environmental and employee related liabilities) from De Beers for atotal consideration of R1 billion (US$149.0million); the consideration ispayable in cash when the conditions precedent set out below have been met,expected to be between May and July 2008; Petra's share of the consideration (asa member of PDCC) is R325 million (US$48.4million) PDCC will assume all the assets and certain liabilities in respect of Cullinan,including the DME rehabilitation obligation with regards to Cullinan of R332million (US$49.5million). The acquisition is conditional on the conversion and transfer of the requiredmining rights and associated approvals from the South African Department ofMinerals and Energy ("DME") as detailed below. Completion of the Agreement is conditional upon the following conditions: (i) approval by the South African Competition Authority; (ii) the DME converting the old order mining right in respect ofCullinan held by De Beers into a new order mining right; (iii) Ministerial consent to the cession to PDCC of the new ordermining right in respect of Cullinan; (iv) the DME consenting to the cession, transfer and delegationof the rehabilitation obligations and liabilities in respect of Cullinan from DeBeers to PDCC; and (v) all regulatory and other approvals as may be required. Al Rajhi Group Al Rajhi Holdings W.L.L. and Al Rajhi Partners (together "Al Rajhi") alreadyhold 14.1 million ordinary Petra shares, representing 7.8% of the Company'sordinary issued share capital. Al Rajhi also holds (as announced 19 September2006) a US$20 million unsecured, interest free convertible bond and warrantsover 2 million shares, both exercisable into Petra shares at an exercise priceof 130 pence per Petra share. The grant of warrants over 1.5 million Petrashares, exercisable at a price of 180 pence per Petra share, represents a 24.1premium to the 30 day average Petra share price. AIM Disclosures Given the nature of the proposed transaction, the Company has provided suchdisclosure as is required in accordance with Schedule 4 of the AIM Rules as aSubstantial Transaction. A further announcement will follow in due course,which will include a resource statement for Cullinan, in accordance with the AIMGuidance for Mining companies, when the new order mining right is transferred toPetra. An exchange rate of US$1:R6.71 has been used for the purposes of thisannouncement. For further information, please contact:Cathy Malins Telephone: +44 (0) 20 7493 7671Petra Diamonds, London Louise Goodeve / Justine Howarth Telephone: +44 (0) 20 7851 7480Parkgreen Communications, London Adrian Hadden Telephone: +44 (0) 20 7523 8000Collins Stewart, London Ends Notes 1. The information in this update that relates to Exploration Results, MineralResources or Ore Reserves is based on information compiled by Jim Davidson, Pr.Sci Nat (reg No 400031/06), who is a Member of the Geological Society of SouthAfrica, a 'Recognised Overseas Professional Organisation' ('ROPO'). Jim Davidsonis the Qualified Person for the purposes of the AIM Guidance Note on Mining, Oiland Gas Companies dated March 2006. Jim Davidson is a full-time employee of theCompany and has sufficient experience which is relevant to the style ofmineralisation and type of deposit under consideration and to the activity whichhe is undertaking to qualify. Jim Davidson has given his written consent to theinclusion in this announcement of the matters based on his information in theform and context in which it appears. About Cullinan The Cullinan kimberlite pipe was discovered by Sir Thomas Cullinan, who foundheavy diamondiferous concentrate in one of the tributaries of the Pienaars Riverin South Africa. In 1902, he formed the Premier Diamond Mining Company Limitedand purchased Elandsfontein, the farm on which the pipe had been discovered, andin 1903, open pit mining commenced. At the time of the outbreak of World War I,14,000 people were employed on the mine. In 1930, De Beers acquired a controlling interest in Premier Diamond MiningCompany Limited through a scheme of arrangement with Anglo American. The minewas closed in 1932 as a consequence of an absence of demand for luxury goodscaused by the depression. In 1945, dewatering of the open pit started inpreparation for the development of an underground mine. Subsequently, twovertical shafts were sunk to access the orebody. In 1977, the Premier(Transvaal) Diamond Company was amalgamated into De Beers Consolidated, and themine was renamed Cullinan in 2003 as part of the mine's centenary celebrations. The pipe occurs within the stable, three billion year old Kaapvaal Craton andintrudes rocks of the Transvaal Supergroup (Pretoria and Rooiberg Groups),Bushveld complex and the younger Waterberg Group. Originally 32 hectares atsurface, it is the largest diamondiferous kimberlite ever to be discovered inSouth Africa. The large pipe has allowed a variety of mining methods to be utilised inexploiting the orebody. Open pit mining was carried out to a depth of 189metres. Other mining methods used above the gabbro sill included open benchingand block caving. Initially, underground mining used the sub-level open benchmining method but over time, methods and systems were adapted according todiffering ground conditions. In the early 1970's cave mining using scrapers wasimplemented and sub-level open stoping was implemented in the early 1980s. Theore is currently mined using mechanised trackless block-cave mining. About Petra Diamonds Petra Diamonds is a pan-African diamond mining group with operations in SouthAfrica, Angola, Botswana and Sierra Leone. Petra is the second largest producerof diamonds in South Africa after De Beers and it remains Petra's objective togrow its stature as a world class diamond producer in all of the countries inwhich it operates. By offering investors exposure to a mid-tier diamond groupwith production cash flows and major exploration projects, the Company believesit can deliver superior returns to shareholders. In South Africa, the Companyhas four producing mines (excluding Kimberley Underground). Complimenting theGroup's production is a first class exploration portfolio spread across some ofthe world's most prospective diamond fields. In Angola, Petra is developing itsflagship project Alto Cuilo and the neighbouring Luangue project in two separatejoint ventures with BHP Billiton. In Botswana, Petra has established thelargest exploration holding in the country, where it believes that modernexploration techniques will hold the key to the discovery of new, majorkimberlites. In Sierra Leone, Petra is developing a fissure operation and testwork to date indicates the potential for economic operations. The Groupcontinues to assess new opportunities on the African continent and is activelypursuing new prospects to maintain its consistent track record of growth eachyear, such as Calibrated Diamonds which gives Petra the ability to cut andpolish its own production, transforming the Company into a vertically integratedgroup. For further information, please review www.petradiamonds.com About De Beers De Beers, established in 1888, is the world's leading diamond company withexpertise in the exploration, mining and marketing of diamonds. De Beers and itsjoint venture partners operate in more than 20 countries across five continentsemploying nearly 22,000 people. From its 15 mines across Botswana, Namibia,South Africa and Tanzania, De Beers produces approximately 40 percent of theworld's rough diamonds and markets approximately 45%. The company's robustportfolio of future mining projects includes two mines in Canada, and one inSouth Africa set to begin operations in 2007 and 2008. As part of the company'soperating philosophy, the people of De Beers are committed to Living up toDiamonds by making a lasting contribution to the communities in which they liveand work. De Beers encourages sustainable working to ensure long-term positivedevelopment for Africa and returns approximately US$4.9 billion to the continentevery year. For further information about De Beers visit www.debeersgroup.com About Thembinkosi Thembinkosi brings together a significant pool of empowerment players, itsshareholders being Sedibeng Mining (Pty) Ltd, Namoise Mining (Pty) Ltd, UmnothoweSizwe Group (Pty) Ltd, and a Petra Employee Share Trust that will ensure thatall Petra employees can benefit in the mine's success. Sedibeng Mining (Pty)Ltd is a BEE company focused on the empowerment of small-scale miners and womenin the Northern Cape, and the company is partnered with Petra on othersignificant diamond mines in South Africa. Sedibeng Mining (Pty) Ltd is chairedby Clyde Johnson, who left his Executive Director position at MvelaphandaResources to build the business. Clyde also acts as Chairman of the SouthAfrican Mining Development Association ('SAMDA'). Namoise Mining (Pty) Ltd is aBEE and woman-controlled company focusing on the minerals and energy sector withkey shareholders Nana Ditodi and Sizakele Makhaye bringing a wealth ofexperience to the table. Umnotho weSizwe Group (Pty) Ltd is an investmentcompany with interests in the mineral and energy sector. Established in 1996 byVusi Nkosi the company's portfolio has developed over the past several years toinclude diamonds, platinum, chrome and coal assets thus gaining substantialexperience and exposure to the African resources sector. This information is provided by RNS The company news service from the London Stock Exchange