Petra Diamonds Regulatory News (PDL)

Petra Diamonds Limited

("Petra" or "the Company" or "the Group")

Facilities to Fund Williamson and Cullinan Expansion

Petra Diamonds Limited announces that, further to previous public statements regarding the funding of core production growth, it has agreed terms with IFC (a member of the World Bank Group) and Rand Merchant Bank ("RMB"), a division of FirstRand Bank Limited, (together the "Lenders") with regards to new debt facilities of approximately US$78million.

The facilities will, together with contributions from Petra's own treasury, primarily finance the expansions of the Williamson mine in Tanzania ("Williamson") and the Cullinan mine in South Africa ("Cullinan"). In addition, the facilities will be applied to general Petra working capital needs, giving the Group flexibility to settle the outstanding loan due to Al Rajhi Holdings W. L. L. ("Al Rajhi") and removing this short term debt obligation from Petra's balance sheet.

Highlights

·; Petra agrees terms for US$40 million (IFC) and approximately US$38.7 million (R300m) (RMB) five and a half year debt facilities to finance the expansions of Williamson and Cullinan

·; On completion of this debt transaction, the expansion plans for Williamson and Cullinan will be fully financed, assuring the capital roll-out required to take Group annual production to over 3 million carats

·; IFC and RMB involvement endorses the quality of Petra's asset base, the strength of its management team and the solid fundamentals for revenue and earnings growth

·; Long term strengthening of balance sheet - Petra intends to settle the short term Al Rajhi loan (US$31 million) following completion of the debt facilities

·; On settlement of the Al Rajhi loan, and assuming all new debt facilities are fully drawn down, Petra's overall debt will only increase by US$47 million

Johan Dippenaar, Petra's CEO, commented, "We are pleased to have agreed terms for these financing facilities with IFC and RMB. This financing is an important and independent validation by IFC and RMB of the quality of Petra's asset base and our strong management team, following detailed due diligences by both banks. On completion of the financing, the Group will be well positioned to deliver on its core objective to treble annual production to over three million carats.

"Current operational trading is strong, with good prices being achieved at tender, and we look forward to updating the market in July with our trading update for the 2010 financial year."

Conference call

Petra Diamonds will host a conference call on Wednesday 2 June 2010 at 09:00 (London, UK time) to discuss the announcement. Participants may join the call by dialling the appropriate number below, approximately 10 minutes before the start of the call.

From UK: (toll free) 0808 238 7396

From outside of the UK: +44 20 3364 5947

Participant pass code: 129005#

A live audio webcast of the call will be available on:

http://mediaserve.buchanan.uk.com/2010/petra020610/registration.asp 

A replay of the conference call will be available on the same link from 11am on Wednesday 2 June 2010.

Background to the Transaction

At the time of its preliminary financial results in September 2009, Petra outlined plans to increase annual production from approximately one million carats to over three million carats, with expansions at Williamson and Cullinan key contributors to that production growth. The Company also advised that it was in discussions with development banks as to the financing of Williamson, and that Cullinan would likewise require additional funding during the period to 2012, before its expansion programme becomes self-funding.

Over recent months, the Company has been in negotiations with both IFC and RMB and announces that it has negotiated a debt package to finance the expansions at both Williamson and Cullinan, which at the same time will provide the flexibility within Petra's own treasury to repay the Al Rajhi loan of US$31 million (before accrued interest).

The strategy behind these new financing facilities is to secure funding for Petra's planned expansion programme and to potentially fund other organic production growth opportunities currently under consideration. These debt facilities may even allow the Company to further fast track production. The Group will consider carefully whether it needs to take full advantage of the drawdown of these debt facilities, but to secure the financing at this time provides Petra with the scope and flexibility to bring the stated production and revenue growth opportunities to account.

Even if the facilities are fully drawn down, Group debt levels will remain within comfortable levels.

Williamson Expansion

At 146 hectares, Williamson is the largest kimberlite pipe ever to be mined continuously, having been operated as an open pit mine for almost 70 years. The mine regularly produces large, high quality stones and is an important source of rare and extremely valuable fancy pink diamonds.

Petra will be putting in place an expansion programme to increase throughput at Williamson from an average 2 million tonnes per annum ("mtpa") to 10 mtpa, which at an average grade of 6 carats per hundred tonnes ("cpht") would yield an estimated annual production of some 600,000 carats. The expansion plan is estimated to take up to three years to complete.

As previously announced, the additional project Capex for this production expansion will be approximately US$50 million. Petra's acquisition cost of its 75% interest in the mine was US$10 million and since that date Petra has spent some US$20 million on bulk sampling and pit reshaping activities (all of which has been capitalised over the last 18 months) and the purchase of the Polysius A.G. mill that will be key to the expansion. This US$20 million has been funded from Petra's treasury (the majority before the US$120 million equity fundraising in November/December 2009). The IFC debt financing of US$40 million will be applied to the US$50 million development programme, with the balance being contributed from Petra's own treasury.

Cullinan Development

Cullinan is one of the world's most celebrated mines, renowned for producing large, important diamonds, including the 'Cullinan', the largest ever gem diamond at 3,106 carats. In September 2009, Petra recovered a 507 carat, high quality white diamond at Cullinan, which was subsequently sold in February 2010 for US$35.3 million, the highest price on record paid for a rough diamond. The mine is also the only reliable source globally of rare blue diamonds, and Petra has recovered two important and very valuable blue diamonds, that were sold for US$18 million, since taking over the mine in July 2008.

The Cullinan kimberlite pipe hosts the world's second largest diamond resource by in-situ value, with a total of 204 million carats, the vast majority of which is made up by the 'C-Cut' resource (133 million carats). Petra is currently operating the mine at approximately 2 mtpa (producing just under 900,000 carats for the 2009 financial year), but has initiated a development plan to access the C-Cut resource and is targeting an underground mining throughput target by 2019 of 4 mtpa at an anticipated grade of 55 cpht, ramping production up from 1 million carats to 2.2 million carats between 2014 to 2019.

In addition, a large tailings operation is expected to process an additional 4 mtpa, yielding 400,000 carats annually from the 2014 financial year, ramping up Cullinan's total annual production year by year to 2.6 million carats by the 2019 financial year.

The overall Capex for this programme is estimated to be R2.9 billion (US$357 million) (2009 money), to be spent over the ten year life of the expansion programme until 2019. Approximately US$30 million of Capex funding will be required during the period to 2012, whereafter it is expected that the mine will generate sufficient cashflow to fund the remaining Capex programme. The RMB debt facility of approximately US$38.7 million (R300 million) will be applied to this Cullinan programme with the excess (if required), combining with the renewal of the existing US$12.9 million (R100 million) overdraft facility from RMB to finance Petra's general working capital needs.

Al Rajhi Loan

When Petra increased its interest in the Cullinan mine to 74% in December 2009 (by acquiring Al Rajhi's 37% interest), the Company assumed responsibility for the loan provided in respect of the original acquisition and financing of the mine (the "Al Rajhi loan"). The Al Rajhi loan was reduced to US$50.7 million in December 2009 by the issue of 11.4 million new Petra shares to Al Rajhi and the payment of US$15 million cash from the proceeds of the equity fundraising completed at that time.

Additional loan repayments totalling US$19.7 million have been made to Al Rajhi by Petra from cash balances in 2010, further reducing the principal loan balance from US$50.7 million to US$31 million (excluding interest). Petra intends to settle the outstanding Al Rajhi loan shortly after the debt financing is completed from a combination of its own treasury and the RMB facility, removing the short-term deadline to settle the Al Rajhi loan.

Details of the Debt Facility

·; The loan facilities will be available for Petra's drawdown for up to 24 months from financial close of the transaction and carry a capital repayment holiday period of 24 months from financial close

·; Interest rates: IFC US$ loan - six month US$ LIBOR plus 4.5% margin; RMB ZAR loan - six month JIBAR plus 4.5% margin

·; Capital repayments: eight semi-annual payments commencing after a 24 month capital repayment holiday period

·; Final repayment date: five and a half years from financial close

·; Financial close will be reached when all conditions precedent to completing the transaction have been met or appropriately waived; further information on likely timing in that regard will be provided in due course

All other terms usual for a debt transaction of this nature will be disclosed in detail when full legal agreements are executed by Petra and the Lenders, which is expected to be in July 2010.

The Lenders' decision to invest will remain subject to board approvals and execution of final documentation.

Warrants package

As a term of the debt facilities, each of the Lenders will be granted 6.3 million warrants over Petra shares on financial close. The warrants vest on grant and the warrant expiry dates will be in equal tranches at the end of years two, three and four from the warrant grant date. The warrant exercise prices for each tranche will be 90p, 95p and 100p respectively.

Notes

1. Exchange rates of US$1:R7.75 and £1:US$1.45 have been used for the purposes of this announcement.

For further information, please contact:

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About Petra Diamonds

Petra Diamonds is a leading supplier of rough diamonds, with a gross resource base of 262 million carats. The Company offers a unique growth profile within the diamond sector, increasing its annual production fivefold in the year to June 2009 to over one million carats, and with firm plans in place to grow production to over three million carats.

Petra has a well-diversified portfolio, with majority interests in seven producing mines: six in South Africa (Cullinan, Koffiefontein, Kimberley Underground, Helam, Sedibeng and Star) and one in Tanzania (Williamson).

Petra conducts all its operations according to the highest ethical standards, and will only work in countries which are members of the Kimberley Process. The Company is quoted on the AIM market of the London Stock Exchange (AIM: PDL). For more information, visit www.petradiamonds.com 

About IFC

IFC, a member of the World Bank Group, fosters sustainable economic growth in developing countries by supporting private sector development, mobilising private capital, and providing advisory and risk mitigation services to businesses and governments. IFC's new investments totalled US$14.5 billion in fiscal 2009. For more information, visit www.ifc.org.

IFC has made the appropriate disclosures on its website with regards to the Petra debt facility, in accordance with IFC's Policy on Disclosure of Information.

About RMB

RMB, a division of the FirstRand Bank Limited, is a leading diversified financial services brand encompassing investment banking, fund management, private wealth management and advisory services. The bank offers innovative financing solutions to its clients in South Africa and across Africa. For more information, visit www.rmb.co.za.