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BHP abandons Angola diamond search
Allan Seccombe
Posted: Tue, 13 May 2008

[miningmx.com] -- BHP Billiton has drawn a line under its exposure to diamond exploration in Angola and will transfer its 75% stake in the Alto Cuilo joint venture to its partner Petra Diamonds, clearing the way for another company to possibly come in on the projects.

Petra will switch the focus away from the search for classic kimberlites that BHP Billiton was hunting for to shallower deposits on the ancient volcano crater rim, said Petra chairman Adonis Poroulis. BHP is also leaving the Luangue project.

“Our joint venture with BHP Billiton has been rewarding, but we now have the opportunity to progress exploration at Alto Cuilo and Luangue in a way that is more oriented to Petra’s approach to mining,” Poroulis said.
Angola just didn’t fit anymore
“Petra is in a great position to deliver on its strategy and our enthusiasm and belief in Alto Cuilo and Luangue is as strong as ever.”

The cost of the transaction between BHP, the world’s largest resources company, and Petra, which includes BHP transferring its 25% stake in the Luangue exploration project, was not revealed.

BHP’s exit from the two projects came as little surprise for Des Kilalea, a leading diamond analyst at RBC Europe, who pointed out in an April note to clients that “BHP Billiton's enthusiasm (at Alto Cuilo) appears to have waned somewhat.”

He told Miningmx on Tuesday he thought the main reason for BHP’s departure was that the geology was not what the diversified resources group was looking for and no classic kimberlitic deposits – a carrot or champagne glass formation -- had been found.

“Instead, what they found was a mixed up ore body, with great variations in grade at depth and under quite a lot of sand,” Kilalea said.

The deposits BHP had focussed on and the new targets Petra is now going to focus its attention on were unlikely to generate the kind of revenue that made sense for a company of that size.

BHP had also suspended exploration work after a helicopter crash in Angola killed five people in November 2007.

“The third reason, maybe, and I say maybe, is that BHP is re-assessing their diamond portfolio and asking about returns and how big it needs to be. I guess what happened is that Angola just didn’t fit anymore,” Kilalea said.

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Petra has taken a 40% stake in Moyowena, an Angolan company that holds 13% of the Alto Cuilo project. Once the BHP transaction is completed, Petra will own an effective 41.2% of the project.

It will own an effective 39% of Luangue once it acquires BHP’s 25% stake in the joint venture.

Negotiations are underway to determine the final terms of the handover.

Kilalea estimates BHP has spent between $60m and $70m in Angola.

The big question now is whether Petra can advance these two projects into production under its own steam and, if it does bring in a partner, who that might be.

Petra plans to spend $22m at the two projects over a year in an accelerated exploration programme.

“We now view Petra as large and strong enough to push serious projects forward on its own. Petra’s management team have extensive experience and are developing a track record for pushing projects ahead,” Fairfax said in a note.

“Petra may now accelerate progress at the giant Alto Cuilo and Luangue projects unfettered by their former partner’s more conservative working practices,” it said. “Other parties such as Gem Diamonds will no doubt be looking over their shoulders and may be willing to take a role in the joint development of very large projects.”

Kilalea said he thought Russia’s Alrosa would most likely be top of the list of potential partners, having deep enough pockets to fund the hundreds of millions of dollars necessary to build mines and plants. Gem Diamonds favoured controlling projects, something Petra appeared to have set its heart on doing at the Angolan projects, and that these might be too early-stage for Clifford Elphick’s tastes.

He also did not rule out De Beers, but said the projects might be a bit on the small side for the world’s largest rough diamond producer. However, Petra and De Beers have forged a relationship in South Africa where the former has bought three mines from the latter.