Last checked at 16 Jul 2008 07:00
16 July 2008
Petra Diamonds Limited
Petra takes the helm at the Cullinan Diamond Mine
Petra Diamonds Limited ("Petra" or "the Company"), the international diamond mining group, announces the completion of the acquisition of the Cullinan diamond mine ("Cullinan") by the Petra Diamonds Cullinan Consortium ("PDCC") from De Beers Consolidated Mines ("De Beers"). Petra's initial interest in PDCC is 37%.
Highlights
The Cullinan kimberlite pipe is the second largest indicated diamond resource in the world by in-situ value; the addition of Cullinan transforms Petra into one of the world's largest diamond groups on a gross resource basis
The mine is renowned for producing many of the world's most spectacular diamonds (including over 300 stones weighing more than 100 carats), the most famous of which is the 3,106 carat Cullinan diamond. Cullinan is also the world's only significant source of truly rare and highly valuable blue diamonds
For the year 2008/09, the first year of operation in Petra's hands as the mine operator, Cullinan is expected to produce 700,000 to 850,000 carats and from 2009/10, when at full production, output is expected to increase to over 1 million carats per annum, with associated annual revenues of around US$100 million (all figures gross PDCC)
The members of PDCC are Petra (37% initial interest and an option to increase its stake in PDCC to 60%), Al Rajhi Holdings W.L.L. (37% initial interest) and PDCC's Black Economic Empowerment ("BEE") partners (26% interest)
The acquisition cost of R1 billion has been settled by PDCC in cash. PDCC has been funded by Petra and Al Rajhi each contributing US$40 million equity to the PDCC SPV and Al Rajhi providing US$95 million loan finance (unsecured, bearing interest at 8%). The total financing package of US$175 million (R1.4 billion) covers the acquisition cost as well as working capital and capex requirements
Petra Diamonds is, at the outset, compliant with South African minerals legislation at Cullinan in that 26% of the equity in the operation is held by BEE interests, including a 12% stake that is held by an employee share trust
Adonis Pouroulis, Petra's Chairman, commented, "The acquisition of Cullinan by the Petra Diamonds Cullinan Consortium is a landmark deal and we at Petra are proud to take the helm at one of the world's most important diamond mines. Cullinan is a major producer and Petra's associated production and cash flows are therefore expected to rise substantially over the next few years. This transaction underscores our belief in the tenets of broad based mineral ownership in South Africa and a sustainable mining operation at Cullinan will bring long lasting benefits to the local community of this historic town for many years to come. Cullinan earned its place in the history of diamonds and we, as a member of the Petra Diamonds Cullinan Consortium, intend that it should play a significant part in its future."
Nicky Oppenheimer, Chairman of De Beers, stated, "It is with appreciation to the employees, their families and the wider community of Cullinan that De Beers ends both a personal and a business association with Cullinan Diamond Mine which began in 1926 with my grandfather, Ernest Oppenheimer, joining the board of Premier (Transvaal) Diamond Mining Company Limited, and De Beers appointing the managing director. Cullinan has every prospect of a sound future built, as it is, on a proud past of mining achievements and on being the premier source of the world's largest and finest diamonds for more than a century. The mine can look forward to its association with the Petra Diamonds-led empowerment consortium, satisfying as it does both the transformation and business sustainability goals our company's share. I look forward to watching Cullinan succeed in this, its next stage of what has become a legendary journey."
Background
On 22 November 2007 Petra announced that it had, as a member of PDCC, entered into an agreement with De Beers to acquire Cullinan. The completion of the acquisition was subject to certain conditions, all of which have now been met. The final condition was the registration in the Mineral and Petroleum Titles Registration Office of the transfer by De Beers of the Cullinan new order mining right into the name of Cullinan Diamond Mine (Pty) Limited ("CDM"). CDM is wholly owned by the members of the PDCC, and represents the interests of PDCC in Cullinan.
On 22 November, when the acquisition was announced, Petra stated that it expected the acquisition to be completed by the end of July 2008. This target has been met, a significant achievement given the scale of the transaction and the various conditions that had to be satisfied. On behalf of PDCC, Petra would like to thank both the South African Department of Minerals and Energy and De Beers in this regard.
Production Plan
PDCC has acquired Cullinan as a going concern and Petra is the technical operator of the mine on behalf of PDCC. Cullinan comprises the current operating levels at a depth of 747 metres ("the B-Cut"), the Centenary-Cut ("the C-Cut"), a world class diamond resource that lies beneath the B-Cut section, and a substantial tailings resource. There are extensive resources in place (58 million carats) at the B-Cut, excluding the potential of the 133 million carat C-Cut resource.
Petra will, during the first year of operation, focus on establishing the new economics of the mine, including grade, value per carat, cost per tonne and overall production capacity of the infrastructure. Due to this focus in the first financial year to June 2009, Petra will mine from the B-Cut at a rate of 1.4 to 1.8 million tonnes per annum, which is expected to yield between 600,000 and 750,000 carats. This will be augmented by production from the Optical Sorting Plant ("OSP") tailings of approximately 100,000 carats.
Production levels will be progressively ramped up to around 1 million carats per annum from financial year 2009/10, which has the potential to deliver annual revenues of some US$100 million (all figures are stated gross PDCC). Further information on the production plans from the OSP tailings and main tailings resource (16.8 million carats) will follow in due course when Petra has further developed its mine planning in that regard.
Petra has plans in place to make major alterations to the processing of ore by making changes within the plant, with the objective to improve the grade and place emphasis on the recovery of the whole spectrum of diamonds. The mine is renowned for the production of large, high value diamonds, including prized blue diamonds, and all care will be taken to ensure the best possible chance of their recovery.
The C-Cut
The C-Cut resource, at 133 million carats, has been established by De Beers based on exhaustive tests in terms of tunnel bulk sampling on the 763 level, extensive microdiamond sampling of both narrow diameter and large diameter drilling, and the processing of hundreds of tons of material for macro diamonds from large diameter drilling from the 763 level to the 1083 levels. De Beers has also conducted exhaustive studies into development of the C-Cut resource and the documentation put together during these studies is available to Petra.
PDCC will evaluate the development of the C-Cut once the operating parameters of the mine under Petra's management have been established.
Funding & Consortium Structure
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). Based on the performance of the mine and pre-agreed option payments, Petra can at its option increase its interest in PDCC up to 60%.
PDCC has acquired Cullinan for a total consideration of R1 billion. The financing package put in place by Petra and Al Rajhi is US$175 million, which was covered at an average rate of R8/US$ giving rand financing in South Africa of R1.4 billion. This amount covers the R1 billion acquisition price and a further R400 million for the mine's working capital and capex requirements.
The financing package in dollar terms has reduced from the US$200 million sum announced on 22 November 2007 due to a successful forward exchange contract programme put in place since that date (the original R1.4 billion of finance is still being supplied). Petra and Al Rajhi have each contributed US$40 million to the financing package by way of equity in the Petra/Al Rajhi SPV, with Al Rajhi providing a further US$95 million loan (which is unsecured but bears interest at 8%). The interest and repayment of the Al Rajhi loan will be serviced from the mine's cash flows, before any cash flows accrue to Petra. Cash flows would however accrue to Petra should the Al Rajhi loan be refinanced by way of a third party debt facility and the Al Rajhi loan settled. Cullinan, and its substantial asset base, are currently unencumbered.
The BEE partners are Thembinkosi Mining Investments (Pty) Ltd ("Thembinkosi") (14% interest) and a broad based Petra employee share trust (12% interest). Thembinkosi is a consortium of BEE mining companies, namely Sedibeng Mining (Pty) Limited (6.16%), Umnotho weSizwe Group (Pty) Limited (5.04%) and Namoise Mining (Pty) Limited (2.8%).
The Petra employee share trust ensures that all Petra employees can benefit in the mine's success. This structure is very important as it enables all HDSA (Historically Disadvantaged South Africans) Petra employees to participate 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.
The PDCC BEE partners' 26% interest in Cullinan has been funded by Petra/Al Rajhi. The BEE partners' share of the Cullinan funding is to be repaid from the BEE share of future cash flows from the mine, after servicing interest at appropriate interest rates. The BEE partners can arrange independent financing to repay the Al Rajhi/Petra loan.
AIM Disclosures
Given the nature of the proposed transaction, the Company has provided such disclosure as is required in accordance with Schedule 4 of the AIM Rules as a Substantial Transaction. A resource statement for Cullinan, in compliance with the AIM Guidance for Mining companies, is shown below:
| SUMMARY OF RESERVES AND RESOURCES BY STATUS ¹ | ||||||||
| Minerals & Ore | ||||||||
| Category | Gross (100%) ² | Net attributable (37%) ² | Operator ⁴ | |||||
| Tonnes (millions) | Grade (cpht) ³ | Contained Diamonds (millions) | Tonnes (millions) | Grade (cpht) | Contained Diamonds (millions) | |||
| Mineral reserves per asset | ||||||||
| Proved | - | - | - | - | - | - | ||
| Probable - B-Cut | 16.2 | 52.1 | 8.4 | 6.0 | 52.1 | 3.1 | Petra | |
| Total reserves | 16.2 | 52.1 | 8.4 | 6.0 | 52.1 | 3.1 | Petra | |
| Mineral resources per asset | ||||||||
| Measured | - | - | - | - | - | - | PDCC | |
| Indicated - B-Cut | 112.8 | 52.1 | 58.0 | 41.7 | 52.1 | 21.5 | Petra | |
| Indicated - C-Cut | 159.0 | 83.8 | 133.1 | 58.8 | 83.8 | 49.2 | Petra | |
| Inferred (DMS tailings) | 165.4 | 10.1 | 16.8 | 61.2 | 1.0 | 6.2 | Petra | |
| Total resources⁵ | 437.2 | 47.6 | 207.9 | 161.7 | 47.6 | 76.9 | Petra | |
| Source: | J M Davidson, regarded as a Qualified Person for the purposes of the AIM Guidance Note on Mining, Oil and Gas Companies | |||||||
| Notes: | ¹ Cullinan reserves and resources have been taken from the De Beers October 2006 internal scorecard classification (considered to be a conservative classification) and depleted by mining conducted by De Beers from October 2006 to July 2008. Reserves and resources have been re-classified in compliance with JORC 2004 ² "Gross" are 100% of the reserves and/or resources attributable to the licence whilst "Net attributable" are those attributable to the AIM company ³ "cpht" is carats per one hundred tonnes ⁴ "Operator" is name of the company that operates the asset ⁵ Reserves are included in the total resource disclosure given above Optical Sorting Plant ("OSP") tailings are not included in the Reserves and Resources Statement as they do not have inferred status, and are regarded as a deposit by Petra. | |||||||
Notes
1. The information in this update that relates to Mineral Resources 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 South Africa, a 'Recognised Overseas Professional Organisation' ('ROPO'). Jim Davidson is the Qualified Person for the purposes of the AIM Guidance Note on Mining, Oil and Gas Companies dated March 2006. Jim Davidson is a full-time employee of the Company and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify. Jim Davidson has given his written consent to the inclusion in this announcement of the matters based on his information in the form and context in which it appears.
Ends
For further information, please contact:
| Cathy Malins | Telephone: +44 (0) 20 7318 4052 |
| Petra Diamonds, London |
| Adrian Hadden | Telephone: +44 (0) 20 7523 8350 |
| Collins Stewart, London |
| Julian Walker / Harriet Pask | Telephone: +44 (0) 20 7357 9477 |
| Hogarth Partnership, London | pdl@hogarthpr.co.uk |
| Charmane Russell | Telephone: +27 (0) 11 880 3924 |
| Russell and Associates, Johannesburg |
Notes to Editors:
About Cullinan
The Cullinan kimberlite pipe (located to the east of Pretoria, South Africa) was established in 1903 and has been mined for many years as a block cave mine. De Beers is of the opinion that it is the second largest indicated diamond resource in the world by in-situ value.
Many of the world's most spectacular diamonds have been recovered at Cullinan, including the world famous Cullinan diamond in 1905. Found in the early surface workings of the mine, it is still by far the largest gem diamond ever recovered. It weighed 3,106 carats, or 621 grams, and was named after Sir Thomas Cullinan, who discovered the kimberlite deposit in 1898. The rough diamond was cut to form the 530 carat Great Star of Africa and the 317 carat Lesser Star of Africa, set in the Crown Jewels of Britain, seven other significant large stones and 96 smaller brilliants.
Cullinan is renowned as a source of large diamonds and frequently yields diamonds larger than ten carats. Furthermore it has produced over 300 stones weighing more than 100 carats, and around a quarter of all of the world's diamonds weighing more than 400 carats. During the last 15 years Cullinan has produced more than 500 stones each weighing more than 60 carats. More recently, two stones weighing 363 carats and 285 carats were recovered in successive production series in 1997 with a combined value in excess of US$23 million. In the previous series, also in 1997, a 698 carat stone was recovered.
Cullinan is also the world's only significant source of blue diamonds, which are highly desirable in the jewellery market. Cullinan gave the world the collection of 11 rare blue diamonds which were displayed in 2000 at London's Millennium Dome alongside the Millennium Star. This exquisite collection included the 27 carat (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, the famous 69 carat Taylor-Burton diamond and the Golden Jubilee. This means that Cullinan is the source of not only the world's largest rough diamond but also the two largest polished diamonds in the world - the Golden Jubilee (at 545.67 carats) and the 530 carat Great Star of Africa.
About Petra Diamonds
Petra Diamonds is an international diamond mining group with a balanced portfolio combining major producing mines, world class exploration assets and a cutting and polishing business.
With operations in South Africa, Angola, Botswana and Sierra Leone, Petra's objective is to continue to grow production, developing its stature as a leading diamond producer in all of the countries in which it operates.
In South Africa, Petra has five producing mines and recently reached agreement to acquire a further asset, the Kimberley Underground mines, from De Beers. The group is on track to increase its annual production from 180,000 carats in the year to June 2007 to around 1 million carats in the year to June 2009.
Complementing the Group's production is an exploration and development portfolio spread across some of the world's most prospective diamond fields. In Angola, Petra is developing the world class Alto Cuilo and neighbouring Luangue projects. In Botswana, Petra has established the largest diamond exploration landholding in the country, where it believes that modern exploration techniques will hold the key to the discovery of new, major kimberlites. In Sierra Leone, Petra is developing a fissure operation with its JV partner Stellar Diamonds and test work to date indicates the potential for economic operations.
The Petra group now employs some 4,000 people and over the last 10 years the Company has developed a range of social initiatives which continue to make a meaningful impact upon the lives of employees and surrounding communities. Petra's focus remains upon sustainable development, via educational programmes and skills transfer, to ensure a broad based approach with a lasting legacy, and all operations are carried out with the highest regard for the environment according to best practice.
Petra will only commit to working in countries which are members of the Kimberley Process and shareholders can remain assured that Petra's diamonds will only ever be 100% conflict free.
For further information, please visit www.petradiamonds.com.
About Thembinkosi
Thembinkosi brings together a significant pool of empowerment players, its shareholders being Sedibeng Mining (Pty) Ltd, Namoise Mining (Pty) Ltd, Umnotho weSizwe Group (Pty) Ltd, and a Petra Employee Share Trust that will ensure that all 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 women in the Northern Cape. The company is partnered with Petra on other diamond mines in South Africa and is chaired by Clyde Johnson. Mr Johnson was previously an Executive Director at Mvelaphanda Resources and he is currently Chairman of the South African Mining Development Association ('SAMDA').
Namoise Mining (Pty) Ltd is a BEE and woman-controlled company focusing on the minerals and energy sector with key shareholders Nana Ditodi and Sizakele Makhaye bringing a wealth of experience to the table.
Umnotho weSizwe Group (Pty) Ltd is an investment company with interests in the mineral and energy sector. Established in 1996 by Vusi Nkosi, the company's portfolio has developed over the past several years to include diamonds, platinum, chrome and coal assets thus gaining substantial experience and exposure to the African resources sector.