www.miningmx.com | mybk2006 Petra pencils in 1m/year in carats

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Petra pencils in 1m/year in carats
David McKay
Posted: Tue, 25 Jul 2006

[miningmx.com] -- THE unofficial company expectation is that Petra Diamonds will hit annual attributable production of 1 million carats by 2010. So says David Abery, Petra’s financial director. And there are signs that Petra could get there.

The hopes of the company turn mainly on the success of Alto Cuilo, an Angolan diamond prospect, awareness of which was heightened by the investment by BHP Billiton in 2004. BHP Billiton will earn a 75% stake in a joint venture company with Petra Diamonds after spending $60m.

Total capital expenditure for Alto Cuilo could top $1bn if it becomes a fully-fledged mine, says Abery. So while the dilution for Petra is significant it could never hope to tackle Alto Cuilo alone.

The world's most exciting diamond prospect

Alto Cuilo could be a monster – a mine Abery likens to Canada’s Ekati. “It could be a five to seven million carat a year producer. Already it’s a kimberlite far larger than Orapa (De Beers’s mammoth Botswana-based mine),” he says. Consequently, the economics of the mine come down to grade.

That’s one of the reasons Petra has signed a strategic co-operation agreement with Xceldiam, a junior that listed on London’s AIM last year. At that time Petra picked up a 2,9% stake in Xceldiam, knowing that its property – Luangue – “sat like a brick” on the northern boundary of Petra’s Alto Cuilo, says Abery.

If the geologists are correct, combining Luangue and Alto Cuilo makes more economic sense than mining Alto Cuilo separately. Abery says there’s “a little hunch” that Alto Cuilo and Luangue are one and the same. In terms of the strategic alliance, unveiled in early June, Petra has first right of refusal over the entity that owns Luangue.

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Alto Cuilo is a company maker of note for Petra. Though the company, which produced about 144,000 carats from its South African mines in its 2005 financial year, has prospects in Botswana and Sierra Leone, nothing quite matches the appeal of Alto Cuilo. “It’s probably the most exciting diamond prospect in the world,” says Abery.

It’s also worth repeating just how hard diamond exploration can be. Roughly $500m is spent for every mineable kimberlite discovered. That’s wholly down to the rarity of economic kimberlites. Of the 4,450 current known kimberlites in the world less than 1% are commercial ventures.

Endiama, the Angolan state-owned company, owns 51% of Alto Cuilo in terms of the country’s prospecting laws. But expectations are that the state holding would be diluted as capital calls mount during building the mine. “It’s all up for discussion, but we’d expect the state holding to fall,” says Abery.

Alto Cuilo, if economic, will help boost Angola’s contribution to world diamond production as well as foreign exchange earnings amid a supply deficit for diamonds. Demand is expected to increase 50% from $9bn in 2004 to $14bn by 2012. That’s more than the combined productions of Botswana and Russia.

In July, African Diamonds said it had found a prospect in Botswana, known as AK6, that could produce as much as 1.5 million carats/year. The property is shared with De Beers which has a stake in the nearby Orapa diamond mine.