[miningmx.com] — PETRA Diamonds has bought the Finsch Mine from De Beers for R1.425m and has simultaneously raised US$325m through a private equity placing.
De Beers announced in July that it was looking at selling the Finsch mine in the Northern Cape.
Petra has already bought a number of other diamond mines from De Beers including the Cullinan, Koffiefontein and Kimberley Underground operations in South Africa and the Williamson mine in Tanzania.
Finsch is one of the world’s largest diamond mines and the second biggest in South Africa after De Beers’ Venetia mine in Limpopo Province.
According to a company statement, Finsch is expected to produce more than 1.5m carats during its first full year of production under Petra’s control which will more than double the group’s current output of 1.3m carats annually.
Petra said group output – including Finsch – is expected to increase to around 4m carats/year by 2014 and more than 5m carats/year by 2019.
Petra added the acquisition is expected to be immediately accretive to net asset value and operating cash flow per share following the placing of the 136.7m new shares .
It said the Finsch diamond resource amounted to 48.1m carats – of which 26.6m carats were in reserves – and would increase Petra’s gross resource base to about 309m carats with a gross, in situ, value of about $38bn based on current diamond prices.
The $325m (about R2.2bn) proceeds from the share placing will be used primarly to pay for Finsch which will account for $210m.
A further $40m will cover working capital requirements and meet regulatory environmental guarantees at the mine while $57m will be used to settle outstanding debt as well as cover capital expenditure and working capital requirements on other group mines.
Petra CEO Johan Dippenaar commented, “this acquisition is a landmark development for Petra and a further progression of our strategy to build one of the world’s leading, independent diamond producers.
Petra will own 74% of Finsch with the balance held by the group’s BEE partners who include Sedibeng Mining, Namoise Mining and the Petra Diamonds employee share incentive trust.
Petra management has been highly successful in turning around mining operations at the mines bought from De Beers through reducing working costs and/or improving recovered grades.
The most notable success has arguably been with the Cullinan mine near Pretoria where Petra management made major changes to the recovery plant.
These were intended to ensure the safe recovery of large – more than 200 carat – diamonds which were at risk of being crushed through the previous recovery system.
Petra was rewarded almost immediately with the recovery of a 507 carat diamond – named the Cullinan Heritage – which was subsequently sold for $35.3m – the highest price ever paid for a rough diamond.
In September last year RBC Capital Markets analyst Des Kilalea put an “outperform’ buy recommendation on the stock when it sat at 80p a share and predicted it would rise to 120p. Petra currently trades at 162p.
Kilalea commented in September that, “Petra is one of the few junior or mid-cap diamond mining companies to deliver on its potential. The growth profile should take the company to production of over 3m carats/year by 2019. No other listed diamond producer offers this.’
