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Johan Dippenaar, CEO Petra Diamonds, holds the 507 carat rough diamond found at Cullinan mine.

Big diamonds come to Petra's aid

Allan Seccombe | Tue, 29 Sep 2009 11:47

[miningmx.com] -- PETRA Diamonds, which posted a deep impairment-driven loss, does not have the money to fund expansion plans at its mines in its drive to double output over the next five years, but it has a plan.

Johan Dippenaar, CEO of AIM-traded Petra, said he reckons the diamond market is through the worst after diamond demand and prices fell steeply from September last year when the global economy weakened dramatically, but that any recovery was likely to be volatile.

“We remain cautiously optimistic that we have seen a bottom of the market and that, over the medium term, we will continue to see a further improvement in prices of our rough production,” Dippenaar said, adding the group could grow output to three million carats by 2019.

Petra has grown diamond production five-fold to 1.099 million carats over the past year as it grew its holding of mines that were owned by De Beers. The most notable acquisition was the Cullinan mine, which has recently yielded a 507 carat white diamond and three other large white diamonds ranging between 53 and 168 carats.

It is the sale of these diamonds that will ensure the growth plans Petra has for Cullinan mine, which hosts 200 million of the group’s 262 million resource carats.

Petra had $11m in cash as at year-end in June 2009. It was a year in which its revenue came off 10% to $69m because of weak diamond prices.

Petra posted a net loss of $89m against a $2m profit the previous year. This was largely due to a $75m impairment of defunct Angolan and Sierra Leone exploration assets and two South African fissure mines.

The cash balance is enough to fund ongoing trading but not the expansion plans at Cullinan and the Williamson mine in Tanzania, said Petra chairman Adonis Pouroulis, adding the group had flexibility of when and how it would implement those plans, with the large Cullinan diamonds playing a key role.

“While too soon to put a firm value on these stones their combined sale revenue has the potential to cover most if not all of Cullinan’s expansion capital for the next two years,” he said.

“While Petra may undertake a small fundraising in the near future to top up its working capital treasury, we have a high degree of flexibility as to if and when we raise a more significant amount of money for capital development and will make that decision based on market conditions at the time…,” Pouroulis said.

Cullinan, which yielded 888,595 carats at a total on-mine unit cost of $19/tonne, is at the heart of Petra’s planned output growth, which will cost $357m over a decade to lift production to 2.2 million carats.

Petra estimates it will need $30m up to 2012, “where after it is expected that the mine will generate sufficient cash flow to fund the remaining capex programme,” Dippenaar said.

Petra has conducted a $15m feasibility study at Williamson, which it bought for $10m from De Beers. The mine generated revenue of nearly $10m, but incurred a loss of $2.8m in the eight months Petra has owned it.

Cullinan has 165 million tonnes of tailings containing nearly 17 million carats. A new treatment plant will generate 100,000 carats/year by 2012, rising fourfold by 2014 to boost total diamond output from Cullinan to 2.6 million carats by 2019.

Petra is talking to development banks for project finance of up to $30m at Williamson. Petra will fund the rest of the capex bill that comes in at a total $45m-50m.

Williamson, which was taken over by Petra in November last year, generated 84,486 carats. Petra reckons with its expansion plan, the mine can run at up to 600,000 carats a year over a life of 19 years at a targeted cost of $9/tonne.

There is also a 40 million tonnes tailing dump that could be treated, but it is not featured in the plans yet.